Energy Conservation Program for Consumer Products: Energy Conservation Standards for Clothes Washers

SUMMARY: The Energy Policy and Conservation Act, as amended (EPCA or

Act), requires the Department of Energy (DOE or Department) to consider

amending the energy conservation standards for certain major household

appliances. This supplemental advance notice of proposed rulemaking

(ANOPR) addresses the requirement of EPCA to consider amending the

energy conservation standards for clothes washers no later than five

years after the date of publication of the previous final rule (May 14,

1991).

The purpose of this supplemental ANOPR is to provide interested

persons with an opportunity to comment on:

First, the product classes that the Department is planning to

analyze;

Second, 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 the Department expects to use in

performing analyses of the impacts of standards; and

Third, the results of preliminary analyses for life-cycle-cost,

payback and national energy savings contained in the Preliminary

Technical Support Document: Energy Efficiency Standards for Consumer

Products: Clothes Washers (TSD) and summarized in this supplemental

ANOPR.

DATES: Written comments must be received by February 2, 1999. The

Department requests 10 copies of the written comments and, if possible,

a computer disk. The Office of Codes and Standards is currently using

WordPerfect 6.1.

A public hearing will be held on December 14 (1:00-4:00 p.m.) and

15 (9:00 a.m.-4:00 p.m.), 1998. See Supplementary Information for

further details.

ADDRESSES: Written comments should be submitted to: U.S. Department of

Energy, Attn: Brenda Edwards-Jones, Office of Energy Efficiency and

Renewable Energy, ``Energy Efficiency Standards for Consumer

Products,'' (Docket No. EE-RM-94-403), EE-431, Forrestal Building, 1000

Independence Avenue, SW, Room 1J-018, Washington, D.C. 20585, (202)

586-9127.

The public hearing will be held at the U.S. Department of Energy,

Forrestal Building, 1000 Independence Avenue SW, Room 1E-245,

Washington, D.C. 20585.

Copies of the Preliminary Technical Support Document: Energy

Efficiency Standards for Consumer Products: Clothes Washers (TSD) may

also be obtained from: U.S. Department of Energy, Office of Codes and

Standards, 1000 Independence Avenue, SW, Rm 1J-018, Washington, D.C.

20585-0121, (202) 586-9127.

Public Information: The public may access the Freedom of

Information Reading Room, located at the U.S. Department of Energy,

Forrestal Building, 1000 Independence Avenue, SW, Room 1E-190,

Washington, D.C. 20585 between the hours of 9:00 a.m. and 4:00 p.m.,

Monday through Friday, (except Federal holidays). Call (202) 586-6020

for information.

For more information concerning public participation in this

rulemaking proceeding, see section IV, ``Public Comment Procedures,''

of this document.

FOR FURTHER INFORMATION CONTACT: Bryan Berringer, U.S. Department of

Energy, Office of Energy Efficiency and Renewable Energy, Forrestal

Building, Mail Station EE-431, 1000 Independence Avenue, SW,

Washington, D.C. 20585-0121, (202) 586-0371, E-mail:

[email protected]

Eugene Margolis, Esq., U.S. Department of Energy, Office of General

Counsel, Forrestal Building, Mail Station GC-72, 1000 Independence

Avenue, SW, Washington, D.C. 20585, (202) 586-9507, E-mail:

[email protected]

SUPPLEMENTARY INFORMATION:

I. Introduction

A. Authority

B. Background

1. History

2. Test Procedure

3. Process Improvement

II. Clothes Washers Analyses

A. Preliminary Market and Technology Assessment

1. Market Assessment

a. General

b. Product Specific

2. Technology Assessment

a. General

b. Product Specific

3. Preliminary Base Case Shipments Forecast

a. General

b. Product Specific

B. Screening Analysis

1. Product Classes

a. General

b. Product Specific

2. Baseline Unit

a. General

b. Product Specific

3. Design Options/Efficiency Level

a. General

b. Product Specific

4. Proprietary Designs

a. General

b. Product Specific

C. Engineering Analysis

1. Energy Savings Potential and Manufacturing Costs

a. General

b. Product Specific

I. Manufacturing Cost--Reverse Engineering

D. Life-Cycle-Cost (LCC) and Payback Analysis

1. Life-Cycle-Cost Spreadsheet

a. General

b. Product Specific

i. LCC Analysis

ii. Payback Analysis (Distribution of Paybacks)

iii. Rebuttable/Test Procedure Payback

2. Preliminary Results

a. General

b. Product Specific

E. Preliminary National Impact Analyses

1. National Energy Savings (NES) Spreadsheet Model

a. General

b. Product Specific

2. Preliminary Results

a. General

b. Product Specific

3. Indirect Employment Impacts

a. General

b. Product Specific

F. Consumer Analyses

1. Purchase Price

a. General

b. Product Specific

2. Consumer Participation

a. General

b. Product Specific

G. Manufacturer Analysis

1. Industry Cash Flow

a. General

b. Product Specific

2. Manufacturer Sub-Group Analysis

a. General

b. Product Specific

3. Interview Process

a. General

b. Product Specific

H. Competitive Impact Assessment

a. General

b. Product Specific

I. Utility Analysis

1. Proposed Methodology

a. General

b. Product Specific

i. Assumptions

ii. Results

J. Environmental Analysis

[[Page 64345]]

1. Proposed Methodology

a. General

b. Product Specific

K. Regulatory Impact Analysis

III. Proposed Standards Scenarios

IV. Public Comment Procedures

A. Participation in Rulemaking

B. Written Comment Procedures

C. Issues for Public Comment

V. Review Under Executive Order 12866

I. Introduction

A. Authority

Part B of Title III of the Energy Policy and Conservation Act,

Public Law 94-163, as amended by the National Energy Conservation

Policy Act, Public Law 95-619, the National Appliance Energy

Conservation Act of 1987, Public Law 100-12, the National Appliance

Energy Conservation Amendments of 1988, Public Law 100-357, and the

Energy Policy Act of 1992, Public Law 102-486 (the Act or EPCA),

created the Energy Conservation Program for Various Consumer Products

other than Automobiles. 42 U.S.C. 6291-6309.

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, Section 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). 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.

Before the Department determines whether or not an energy

conservation standard is economically justified, it must first solicit

comments on the proposed standard. EPCA, Section 325(p), 42 U.S.C.

6295(p). Any new or amended standard is required to be designed so as

to achieve the maximum improvement in energy efficiency that is

technologically feasible and economically justified. EPCA, Section

325(o)(2), 42 U.S.C. 6295(o)(2). After reviewing comments on the

proposal, the Department 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 of the products subject to such standard;

(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 for the

covered products that are likely to result directly from the imposition

of the standard;

(3) The total projected amount of energy, or as applicable, water,

savings likely to result directly from the imposition of the standard;

(4) Any lessening of the utility or the performance of the covered

products likely to result from the imposition of the standard;

(5) The impact of any lessening of competition, as determined in

writing by the Attorney General, that is likely to result from the

imposition of the standard;

(6) The need for national energy and water conservation; and

(7) Other factors the Secretary considers relevant.

B. Background

1. History

The Department initiated a clothes washer rulemaking to determine

if the standards (design feature requirements) imposed by the Act

should be amended. The Department published an Advance Notice of

Proposed Rulemaking (ANOPR) (53 FR 17712, May 18, 1988), a Notice of

Proposed Rulemaking (NOPR) (54 FR 32744, August 9, 1989), and the May

1991 Final Rule. The May 1991 Final Rule mandated performance-based

energy conservation standards for clothes washers. The standards

specified a minimum energy factor (EF) for two of the five classes of

clothes washers (top-loading standard and top-loading compact). The

energy conservation standards in the May 1991 Final Rule are effective

for products manufactured on or after May 14, 1994.

In the May 1991 Final Rule, the Department announced that it was

accelerating the second review of energy efficiency standards for

clothes washers because it became aware, after the rulemaking was

closed, of a design option (horizontal-axis (H-axis) wash tub in a top-

loading washer) in use in Europe that was not included in the proposed

rule and upon which no comment was received. The Department did not

consider establishing a standard based on the top-loading H-axis design

option because this information came to the attention of the Department

after the close of the comment period on the proposed rule and thus was

not subject to public debate.

On September 28, 1990, the Department published an ANOPR for nine

products which included the second review of energy efficiency

standards for clothes washers. 55 FR 39624. In response to that notice,

a number of energy efficiency advocates and appliance manufacturers

requested that the Department delay the second review until a 1995-1996

time frame. The additional time was requested in order to allow

manufacturers time to meet the standards in the May 1991 Final Rule

which became effective on May 14, 1994, and to fully evaluate new, more

energy efficient technologies such as top-loading H-axis clothes

washers. This additional time, manufacturers contended, would enable

them to provide more meaningful and relevant comments on the next,

legislatively required, rulemaking. The Department considered the

request, and by letter, dated February 26, 1992, notified the parties

requesting the delay that the Department had determined that it would

conduct the rulemaking on the later schedule, as requested.

On November 14, 1994, the Department issued an ANOPR to begin the

second review of energy efficiency standards for clothes washers,

dishwashers and clothes dryers. In this ANOPR, the Department presented

the product classes that the Department planned to analyze, the

analytical framework and models that the Department expected to use in

performing analyses, and issues on which the Department was interested

in gathering data. The Department received comments in response to this

ANOPR and also collected data from the manufacturers which was compiled

by the Association of Home Appliance Manufacturers (AHAM) on May 8,

1995, and July 6, 1995. (AHAM, No. 27 and 38.)

2. Test Procedure

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

[[Page 64346]]

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 NOPR

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 it 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 J1 of the revised test procedure would go into

effect upon issuance of standards. 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.

3. Process Improvement

During consideration of the fiscal year 1996 appropriations, there

was considerable debate about the efficacy of the standards program.

The Department of the Interior and Related Agencies Appropriations Act

for Fiscal Year 1996 included a moratorium on proposing or issuing

energy conservation appliance standards for the remainder of Fiscal

Year 1996. See Pub. L. 104-134. Congress advised DOE to correct the

standards-setting process and to bring together stakeholders (such as

manufacturers and environmentalists) for assistance. In September 1995,

the Department announced a formal effort to consider further

improvements to the process used to develop appliance efficiency

standards, calling on energy efficiency groups, manufacturers, trade

associations, state agencies, utilities and other interested parties to

provide input to guide the Department. On July 15, 1996, the Department

published a Final Rule: Procedures for Consideration of New or Revised

Energy Conservation Standards for Consumer Products (hereinafter

referred to as the Process Rule). 61 FR 36974.

The Process Rule outlines the procedural improvements identified by

the interested parties. The process improvement effort included a

review of the: (1) economic models, such as the Manufacturer Analysis

Model and Residential Energy Model; (2) analytical tools, such as the

use of a Monte Carlo sampling methodology; and (3) prioritization of

future rules. The Process Rule includes the accounting for uncertainty

and variability by doing scenario or probability analysis (as detailed

in the Process Rule, 10 CFR 430, Subpart C, Appendix A Secs. 1(f),

4(d)(2), and 10(f)(1)). In addition, an Advisory Committee on Appliance

Energy Efficiency Standards, consisting of a representative group of

these interested parties, was established to make recommendations to

the Secretary regarding the implementation of the Process Rule.

The clothes washer standards rulemaking is the first rule to be

developed under the Process Rule. Although there were two previous

ANOPRs, the Department made a commitment to use the Process Rule to the

extent possible in the development of the new clothes washer standards.

In this supplemental ANOPR, the Department is presenting the framework

by which it will develop the standards. The framework reflects

improvements and steps detailed in the Process Rule. The rulemaking

process is dynamic. If timely new data, models or tools that enhance

the development of standards become available, they will be

incorporated into the rulemaking. For example the Advisory Committee

has made several recommendations and the Department has proposed

responses which are discussed in this supplemental ANOPR.

On November 15, 1996, the Department held a workshop to discuss

proposed design options and a preliminary engineering analysis for

clothes washers. Two reports were presented: ``Draft Report on the

Preliminary Engineering Analysis for Clothes Washers'' and ``Draft

Report on Design Options for Clothes Washer'' (Clothes Washer Public

Workshop, No. 55 B and C). A number of concerns were raised relating to

the application of the Process Rule to the clothes washer rulemaking,

including the need for a review of the manufacturing impact analysis

model and methodologies, and a review of non-regulatory approaches

(Thiele, No. 55L, at 80), whether the manufacturing cost data collected

needed to be updated (Topping, No. 55L, at 52), and whether the

Department ought to continue relying on the old methods of doing the

analysis. (Perlis, No. 55L at 167.)

Responding to comments from the November 1996 workshop concerning

the application of the Process Rule to the clothes washer rulemaking,

the Department developed an analytical framework for appliance

standards rulemaking. It was presented during a clothes washer workshop

held on July 23, 1997. The analytical framework describes the different

analyses (e.g., the LCC, payback and national impact analyses) to be

conducted (See Table 1), the method for conducting them, e.g., the use

of a new LCC and NES spreadsheet and the relationship between the

various analyses. The framework will be tailored to each rulemaking.

Therefore, the same procedures will not necessarily be followed in all

of the rulemakings. For example, although manufacturing cost data needs

to be collected for each rulemaking, the method for collecting the data

can be customized to the specific product.

Table 1.--Clothes Washer Analyses Under Process Rule

------------------------------------------------------------------------

ANOPR NOPR Final rule

------------------------------------------------------------------------

Screening Analysis.......... Revised Pre-ANOPR Revise Analyses (LCC

Analyses (LCC and and National

National Impacts Impacts Analyses).

Analyses)

Engineering Analysis........ Consumer Sub-group

Analysis.

Life-Cycle-Cost Analysis.... Industry Cash-flow

Analysis (GRIM).

Preliminary National Impacts Manufacturer Impact

Analysis. Analysis.

Utility Impact

Analysis.

[[Page 64347]]

Environmental

Analysis.

------------------------------------------------------------------------

The Department is in the process of developing two new spreadsheet

tools in an effort to meet the objectives of the Process Rule. The

first spreadsheet calculates LCC, and payback. The second one

calculates national energy savings (NES). Both tools will be tailored

for specific products. These spreadsheets and the results of the

preliminary analysis were discussed at a clothes washer workshop held

on March 11, 1998.

The Department has reviewed 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 rates (CMER) 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. The

Department plans to incorporate the recommendations, when appropriate,

into the various rulemaking analyses.

Today's supplemental ANOPR pertains to clothes washers and utilizes

the framework described in Section II. Although the November, 1994

ANOPR included clothes dryers and dishwashers, clothes washers are

considered a high priority product and have been separated out to

accelerate the rulemaking. Comments previously received for the

September 28, 1990, ANOPR and the November 1994 ANOPR relative to

clothes washers are being addressed in this document, where applicable.

II. Clothes Washers Analyses

This section includes a general introduction to each analysis

section and provides a discussion of issues relative to the clothes

washer rule.

A. Preliminary Market and Technology Assessment

The preliminary market and technology assessment characterizes the

relevant product markets and existing technology options including

prototype designs.

1. Market Assessment

a. General. When initiating a standards rulemaking, the Department

develops information on the present and past industry structure and

market characteristics of the product(s) concerned. This activity

consists of both quantitative and qualitative efforts to assess the

industry and products based on publicly available information. Issues

to be addressed include: (1) manufacturer market share and

characteristics; (2) trends in the number of firms; (3) the financial

situation of manufacturers; (4) existing non-regulatory efficiency

improvement initiatives; and (5) trends in product characteristics and

retail markets. The information collected serves as resource material

to be used throughout the rulemaking.

b. Product Specific. The Department reviewed existing literature

and data sources to get an overall picture of the clothes washer market

in the United States. Information was compiled primarily from industry

publications (trade journals), government agencies, trade organizations

(AHAM) and research reports. The Department gathered the following

information: (1) manufacturer market share; (2) historical shipments;

(3) washer sales by outlet type; (4) top retailers; (5) price

distribution; (6) market saturation; (7) voluntary programs; (8) fuel

distribution of water heaters; and (9) gas and electric sales of dryers

(brand names). Information relating to consumer impact and voluntary

programs also was obtained. The information described is discussed in

the sections where it is used in the analysis. The Preliminary TSD

provides additional information.

2. Technology Assessment

a. General. Information relative to existing technology options and

prototype designs are used as inputs to the screening analysis. In

consultation with interested parties, the Department develops a list of

design options for consideration. All technologically feasible design

options are candidates in this initial assessment.

b. Product Specific. This clothes washer rulemaking analysis was

originally performed using the design option approach. In this

approach, information is 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). Features such as high spin speed

(allowing for lower remaining moisture content) and automatic fill

control became important due to changes in the clothes washer test

procedure. AHAM provided additional information on the energy savings

potential and viability of these designs. 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).

The technology assessment began with a study of the efficiencies of

washers currently on the market. To gain greater insight and to begin

creating an efficiency distribution of current product offerings, the

Department used both Appendix J and J1 test procedures on nine

different clothes washers; seven vertical-axis (V-axis) models and two

H-axis models. Products from all five major American manufacturers were

included. The complete results are given in the Preliminary TSD. The

testing program results show a large variation in MEF values are

possible for clothes washers with nearly identical EF ratings. The

Federal Trade Commission (FTC) and manufacturers (through AHAM) also

provided energy efficiency labeling information. Further descriptions

of the most current data are provided in the engineering section of the

Preliminary TSD.

3. Preliminary Base Case Shipments Forecast

a. General. The Department develops a base case forecast of product

shipments in the absence of new standards. This forecast requires an

assessment of the impacts of past and existing non-regulatory efforts

by manufacturers, utilities and other interested parties. DOE considers

information on the actual impacts of such initiatives to date, and also

[[Page 64348]]

considers information presented regarding the possible impacts that any

existing initiatives might have in the future. Such information could

include a demonstration of the steps manufacturers, distribution

channels, utilities or others will take to realize such voluntary

efficiency improvements.

The base case shipments forecast is used as input to the national

impacts analysis, in which a forecast of annual shipments and their

weighted average energy efficiency is needed to the year 2030.

b. Product Specific. In order to develop its base case forecast for

clothes washer sales the Department reviewed: (1) Federal procurement

guidelines; (2) voluntary programs (i.e., utility and consortium

educational materials and/or rebates); (3) government and industry

demonstration and information programs (e.g., Energy Star Program); and

(4) documented discussions with organizations and individuals. Clothes

washer sales will be forecasted by efficiency level for the time period

of 2003 to 2030. This forecast will be more difficult for the clothes

washer rulemaking, because the efficiency factor (EF) was changed to

the modified energy factor (MEF). The Department has limited

information concerning the energy performance of existing product

offerings using the MEF descriptor. Given the vastly different nature

of the variables and testing methods of the current J and future J1

test procedures, the EF values cannot be translated to MEF values. In

addition, the analysis revealed a rapidly evolving market response to

the introduction of new H-axis model clothes washers. In 1997, the

WashWise consortium interviewed manufacturers and asked them to

estimate the market share of H-axis washers in five years. WashWise is

a public/private partnership between Pacific Northwest electric, gas,

water and wastewater utilities, appliance manufacturers and local

retailers. Their goal is to reduce the use of energy and water by

encouraging consumers in Washington, Oregon, Idaho and western Montana

to purchase resource-efficient washers. The results showed a large

divergence of estimates ranging from a low of 5 percent to a high of 25

percent (Coming Clean About Resource-Efficient Clothes Washers: An

Initial WashWise Program and Market Progress Report-Final Report, No.

E98-003, January 28, 1998). (March 11, 1998 Workshop Material, No. 82

OO).

For the purpose of the base case forecast in the preliminary

national impacts analysis, the effect of voluntary programs has been

expressed as the percent of new clothes washers sold each year that

will have efficiencies corresponding to those of H-axis washers. The H-

axis washer is characterized using the data submitted by AHAM for a 35

percent energy reduction from the baseline MEF. The spreadsheet uses

disaggregated values (i.e., water heater energy, dryer energy and

mechanical energy) provided by AHAM. Disaggregated values provided by

AHAM for the baseline washer are also used for the base case forecast.

Calculations based on disaggregated values reflect the efficiencies of

machines actually being sold which may differ from the minimum required

efficiency. The preliminary base case assumes a 1.5 percent share of H-

axis machines in 1995 with a 0.5 percent increase in H-axis sales every

year thereafter, until 2030 (i.e., 19 percent).

The NES spreadsheet allows for changes in the distribution of

efficiencies of clothes washers due to non-regulatory programs. The

user specifies the percent of new clothes washer sales that will

achieve the selected energy reduction (relative to the baseline washer

design) in future years. In later analyses (i.e., the NOPR) the

Department expects to use a distribution of current and forecasted

efficiencies based on the best available information. Information is

still being gathered for this task. The Department seeks comment on

this forecast and welcomes any available information on current product

efficiencies.

B. Screening Analysis

The screening analysis reviews various technologies with regard to

whether they: (a) are impracticable to manufacture, install and

service; (b) have an adverse impact on product utility or product

availability; and (c) have adverse impacts on health and safety. The

screening analysis establishes product classes, baseline units, and

efficiency levels (or combinations of design options) for further

analysis.

1. Product Classes

a. General. Product types are divided into classes using the

following criteria: (a) the type of energy used; (b) capacity; and (c)

performance-related features that affect consumer utility or

efficiency. Different energy efficiency standards will apply to

different product classes. In general, classes are defined using

information obtained in discussions with appliance manufacturers, trade

associations, and other interested parties.

b. Product Specific. The Department's three proposals regarding

clothes washer product classes and a discussion of related comments

follow:

Eliminate the Semi-Automatic Top-Loading, Front-Loading

and Suds Saving classes identified in the May 1991 Final Rule. The

Department is proposing to eliminate certain previously defined

classifications (Semi-Automatic Top-Loading, Front-Loading and Suds

Saving) because they do not offer any added utility which is inherently

less energy efficient and therefore would require protection from the

energy conservation standards. EPCA, Sec. 325(o)(2)(B)(I)(IV), 42

U.S.C. 6295 (o)(2)(B)(I)(IV). 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 rinse option is still applicable to these

classes. The Department has further reviewed this topic and believes

that these products should be subject to the minimum energy

conservation standards applicable to either compact or standard clothes

washers.

Divide all products into a Compact (less than 2.0

ft.3 capacity) Class and a Standard (2.0 ft.3 or

greater capacity) Class. In its written comments, Whirlpool asked the

Department to maintain the current efficiency requirement for the

compact class due to the limited potential for energy-efficient

improvements and the small market share for these products. Whirlpool

also indicated that the V-axis compact clothes washer market and the

manufacturing base for these products has changed since the current

standards were developed. The previous stand-alone 1.6 ft.3

compact V-axis clothes washer products have been replaced by a product

that maintains the small cabinet (22'' width) utility and portability

(via castors); however, its basket capacity is slightly larger. Because

of the limited market size, Whirlpool is currently the only American

manufacturer of these products. They also supply them to other

appliance companies for sale under various brand names. For these

reasons, the Department will revise the compact V-axis product class

definition (1.6 ft.3 capacity) to include all V-axis clothes

washers less than 2.0 ft.3 (Whirlpool, No. 69 at 3). The

Department plans to increase the compact class to include all clothes

washers (both V- and H-axis machines) less than 2.0 ft.3 and

seeks comments on this change.

Classify H- and V-Axis clothes washers as compact or

standard rather

[[Page 64349]]

than establish a separate class for these products. Based on current

information, the Department believes that there is no basis for

separate classes for H- and V-axis clothes washers. Recent and near-

term product offerings, and working prototypes of horizontal and

vertical axis clothes washers demonstrate large energy savings while

maintaining important product features. The Department received

comments suggesting that it identify V- and H-axis machines as a single

product class. Whirlpool stated that the DOE's analyses to date and the

recent consumer acceptance in the market of H-axis products confirm the

validity of a single product class, irrespective of the axis. Whirlpool

further stated that the concerns over clothes washer performance,

consumer utility and reliability are unfounded in either principal or

fact. (Whirlpool, No. 93 at 1.) The Natural Resources Defense Council

(NRDC) stated that the ``H-axis'' design option does not affect the

utility of clothes washers and it is not the only design option that

can comply with the standards. According to the NRDC, the evidence does

not support the establishment of different standards even if separate

classes were established. (NRDC, No. 60 at 1.)

However, other commenters feel that the Department should not

reject separate product classes. General Electric Appliances (GEA)

indicated that the Department is proceeding as if all relevant consumer

utilities are met by H-axis products already on the market or by

machines planned for production. GEA further stated that the port of

access is not the only relevant consumer utility that must be

addressed. Many other consumer utilities, including reliability, must

be addressed. (GEA, No. 88 at 2.) The Department seeks additional

comments on this issue and is currently working with stakeholders to

formulate a process to gather additional consumer input on the issues

surrounding clothes washer utility. This process is discussed further

in Section II.F.2.b.

2. Baseline Units

a. General. In order to analyze design options for energy

efficiency improvements, the Department defines a baseline unit. For

each product class, the assumed baseline unit is a unit that minimally

exceeds the existing standard. To determine the characteristics of the

baseline unit in this screening analysis, the Department gathered

information from trade organizations, manufacturers, and consultants

with expertise in specific product types.

b. Product Specific. The Department issued two new test procedures

during the course of this rulemaking: Appendices ``J'' and ``J1.'' 62

FR 45484. (See Section I.B.2. on Test Procedure.) The engineering

analysis for this supplemental ANOPR is based on the Appendix J1 test

procedure. This test procedure calculates a MEF descriptor. Unlike its

EF predecessor, the MEF uses remaining moisture content (RMC) to

account for energy saved due to lower drying times and temperature use

factors (TUFs). Using cloth loads and different water temperatures are

among the many other substantive differences between the J and J1 test

procedures. Given these different testing methods and variables, there

is no computational relationship between the EF and MEF descriptors.

In order to determine the MEF value for the baseline unit, clothes

washer manufacturers were asked to take a representative clothes washer

with an EF as close as possible to 1.18 (current minimum EF) and

perform the new J1 procedure. If no clothes washer was available with

an EF value close to 1.18, they were asked to adjust the water volume,

machine energy, and/or hot water volume to obtain an EF of 1.18. Five

manufacturers (Amana, Frigidaire, GEA, Maytag and Whirlpool) submitted

data to AHAM. AHAM mathematically averaged these values to derive an

industry average MEF value of 0.817 for the baseline unit (based on an

EF=1.18).

3. Design Options/Efficiency Levels

a. General. Following the development of an initial list of design

options during the technology assessment and the screening analysis,

the Department, in consultation with interested parties, will select

appropriate efficiency levels (or combinations of design options) for

manufacturing cost and energy use data collection.

b. Product Specific. This clothes washer rulemaking analysis was

originally performed using the design option approach. The November

1994 ANOPR included a list of design options that could be considered

in determining the potential energy savings from new clothes washers

standards. Data on the cost and energy consumption of these design

options were obtained from U.S. clothes washer manufacturers through

AHAM on May 8, 1995 (AHAM, No. 27). At the July 13, 1995, Workshop, DOE

presented a detailed design option analysis that also ranked the cost

effectiveness of each option under consideration. On July 6, 1995, AHAM

provided additional design option information and comments about the

way the information should be interpreted. (AHAM, No. 38.)

A report using the updated design option information was presented

during a screening workshop held on November 15, 1996. The report

entitled, ``Draft Report on Design Options for Clothes Washers,'' used

criteria laid out in the Process Rule to screen out design options and

preclude them from further analysis. After the workshop, AHAM commented

that the manufacturers did not believe that disclosure of the design

options used to achieve a given efficiency level was practical, had

value or could be released without disclosure of proprietary

information. (AHAM, No. 67 at 1,2.) Since the technical approach to

achieve any particular efficiency level above the baseline likely

involves multiple design options specific to each company, AHAM stated

that its members believed that supplying cost and energy use data for

several energy levels was sufficient. Several efficiency levels were

selected which corresponded approximately to the efficiency levels

calculated using the design-option approach. These efficiency levels

were discussed at the March 11, 1998, workshop.

It was agreed that the efficiency level approach would be used.

Levels were established and utilized in the engineering analysis (See

Section II.c.1.b).

4. Proprietary Designs

a. General. In its analysis, the Department considers all design

options that are commercially available or present in a working

prototype, including proprietary designs. Proprietary designs are fully

considered in the Department's engineering and economic analyses.

b. Product Specific. At the November 15, 1996, workshop, it was

acknowledged that Whirlpool had four patented proprietary prototype

designs that used V- and H-axis platforms. Whirlpool indicated that

these were working prototypes. (Whirlpool, No. 55L at 77.) On November

29, 1996, the Department sent a letter to the stakeholders with the

patent numbers for the Whirlpool designs as requested during the

November workshop. (DOE, No. 57.)

In response to a Department request to obtain more information,

AHAM stated that it was inappropriate for its members to comment on the

cost/efficiencies of the Whirlpool designs. AHAM asked that prior to

seeking cost/efficiency information on these designs, DOE should verify

that these clothes washer designs were viable, were able to perform

their intended function and had

[[Page 64350]]

usage patterns and lifetimes similar to existing clothes washers. (AHAM

No. 67 at 2.) At the July 1997 workshop, GEA expressed concern that the

Department had not verified that the Whirlpool designs met consumer

utility performance requirements. (GEA, No. 72L at 210.)

In response to these concerns, the Department witnessed efficiency

testing of the prototype design conducted according to the revised DOE

clothes washer test procedure. The results of the testing demonstrated

that the prototype could reach efficiency levels comparable to H-axis

efficiency levels. The Department also witnessed other performance

tests on the Whirlpool design. Tests performed include: (1) cleanliness

testing, using several different stains; (2) gentleness of action

testing; and (3) and rinsability. The test results were benchmarked by

conducting identical tests on two other clothes washers: A top selling

V-axis model and a top selling H-axis model. The tests were conducted

twice for each machine using a seven pound test load. The American

Standards Testing Material ASTM-D4265 standard was used for evaluating

stain and soil removal. Nine different types of stained swatches were

evaluated, six samples of each stain. The cloth used was specified in

the AHAM test methods in addition to various other cloths. The

gentleness testing was conducted using a material with a five hole

pattern cut into the swatches and was evaluated based on the number of

strands present after washing. The rinsability was determined by

placing the washed cloths into a high speed exacter and analyzing the

residual detergent in the water exacted. In all cases, the performance

of the Whirlpool design fell within the range of results obtained for

the other clothes washers tested.

The Department will consider the Whirlpool prototype design in this

rulemaking in the engineering and economic analyses. However, since the

manufacturing costs estimates for the prototype are derived using a

different approach than for other efficiency levels cost estimates, the

economic analysis will be conducted separately. Further discussion on

the costing of the Whirlpool prototype can be found in Section

II.C.1.b.i.

C. Engineering Analysis

The engineering analysis first determines the maximum

technologically feasible energy efficiency level and then develops

cost-efficiency relationships to show the manufacturer costs of

achieving increased efficiency.

1. Energy Savings Potential and Manufacturing Costs

a. General. The engineering analysis estimates the energy savings

potential of the individual or combinations of design options not

eliminated in the previous screening analysis. The Department, in

consultation with stakeholders, uses the most appropriate means

available to determine energy consumption, including an overall system

approach or engineering modeling. Ranges and uncertainties in

performance are established. The energy savings measures developed in

the engineering analysis are combined with end-user costs in the LCC

analysis.

The engineering analysis involves adding individual or combinations

of design options to the baseline unit. A cost-efficiency relationship

is developed to show the manufacturer cost of achieving increased

efficiency. The efficiency levels corresponding to various design

option combinations are determined from manufacturer data submittals

and from DOE engineering calculations.

The Act requires that, in considering any new or amended standards,

the Department must consider those that ``shall be designed to achieve

the maximum improvement in energy efficiency that the Secretary

determines is technologically feasible and economically justified.''

EPCA, Sec. 325(l)(2)(A), 42 U.S.C. 6295(l)(2)(A). Therefore an

essential role of the engineering analysis consists of identifying the

maximum technologically feasible level. The maximum technologically

feasible level is one that can be reached by the addition of efficiency

improvements and/or design options, both commercially feasible and in

prototypes, to the baseline units. The Department believes that the

design options comprising the maximum technologically feasible level

must have been physically demonstrated in at least a prototype form to

be considered technologically feasible.

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.

The Department considers public comments in determining the best

approach for a rulemaking.

If the efficiency-level approach is used, the Department will

select appropriate efficiency levels for data collection on the basis

of: (1) Energy savings potential identified from engineering models;

(2) observation of existing products on the market; and/or (3)

information obtained for the technology assessment. Stakeholders will

be consulted on the efficiency level selection.

The use of a design-option approach provides useful information

such as the identification of potential technological paths

manufacturers could use to achieve increased product energy efficiency.

It also allows the use of engineering models to simulate the energy

consumption of different design configurations under various user

profiles and applications. However, the Department recognizes that the

manufacturer cost information derived in the design-option approach

does not reflect the variability in design strategies and cost

structures that can exist between manufacturers. Therefore, the

Department may derive additional manufacturing cost estimates from

other approaches developed in consultation with interested parties.

The cost-assessment approach can be used to supplement the

efficiency-level or design option approaches under special

circumstances when data is not publicly available because of

proprietary reasons, the product is a prototype and/or the data is not

provided by the manufacturers.

b. Product Specific. At the workshop held on November 15, 1996, a

report entitled, ``Draft Report on the Preliminary Engineering Analysis

for Clothes Washers,'' was presented. This report analyzed the

engineering data submitted by AHAM concerning the manufacturing cost

and energy savings potential for different design strategies that

combined design options. Stakeholders and peer reviewers at the

workshop provided guidance on how the engineering analysis could be

improved. Some manufacturers requested that the Department accept new

data in replacement of the data originally supplied. (AHAM, No. 6 at 1;

Whirlpool, No. 65 at 2.) New cost and performance data was available

owing to recent experience in manufacturing efficient designs. It was

noted that the existing data did not, as the process rule describes,

consider uncertainty and variability in manufacturing costs. (Perlis,

No. 55L at 161-5.) Additionally, peer reviewers commented that cost

effectiveness is manufacturer specific and suggested that the

Department

[[Page 64351]]

consider soliciting from manufacturers cost-efficiency curves that

leave them free to select optimal design strategies. (Topping, No. 55H

at 6.) (Gordon, No. 55I at 5.)

Following the workshop, the Department received a comment from a

manufacturer which recommended that further engineering analyses for

the rulemaking be focused on energy efficiency (MEF) levels and not on

design options. Whirlpool also stated that cost-efficiency curves

should be developed for the industry. (Whirlpool, No. 65, at 5).

Whirlpool remarked that a cost-efficiency approach, which shows

manufacturer costs for increased efficiency, is the most suitable

because it provides a high degree of design confidentiality. It

recommended that this method be used in the engineering analysis, and

that the Department should abandon the practice of adding design

options or combinations of options to the baseline clothes washer.

(Whirlpool, No. 69 at 3). Whirlpool recommended that the data base for

the engineering analysis be updated where large variabilities and/or

uncertainties existed. They noted that the market has continued to

evolve as many new products had been introduced since the development

of the current database. (Whirlpool, No. 92 at 3).

Responding to DOE's request for comments on an approach to

gathering data for the engineering analysis, AHAM stated that its

members believed that supplying cost and energy use data for several

energy levels was sufficient. These levels would include baseline and

efficiencies of 5, 10, 15, 20, 35, 40, 45 and 50 percent above

baseline. The efficiencies of 5, 10, 15 and 20 percent would apply to a

V-axis clothes washer and, the efficiencies of 35, 40, 45, and 50

percent would apply to a H-axis clothes washer. (AHAM, No. 67 at 1).

These efficiency levels were selected to correspond approximately to

the efficiency levels calculated using the design-option approach. The

Department and the manufacturers later agreed to include data for V-

axis clothes washers 25 percent above the baseline to adjust for a

revision to the baseline MEF from .88 to .817. A complete description

of the data collection methodology including a discussion of

uncertainty and variability in manufacturing costs, as well as the

guidelines used to calculate manufacturing costs is included in the

Preliminary TSD.

ACEEE raised concerns relative to the manufacturer cost data

provided by AHAM. ACEEE stated that, in general, the average

incremental retail costs for high-efficiency washers (35 percent

improvement and up) seemed a bit too high based on discussions that it

had with a variety of manufacturers and clothes washer technical

experts. More specifically, ACEEE expressed concerns that these data

show a substantial price jump between the 40 percent and 45 percent

improvement cases. ACEEE believes that the 45 percent improvement level

can be met with standard H-axis machines with very small incremental

costs relative to the 40 percent improvement H-axis machines. It

recommends that DOE collect additional data on 40 percent and 45

percent improvement machines, including reverse engineering and

revising the previous measure-based engineering analysis. (ACEEE, No.

94 at 1).

The Department notes that the costs reported by AHAM at efficiency

levels 40 percent and 45 percent are a representation of industry cost

submitals for these levels. Also, given the changes in the test

procedure, previous data from the design option engineering analysis

cannot be used without causing significant concerns about accuracy and

relevance. The results of the cost assessment summarized in Section

II.C.1.b.i. will however provide a secondary source of manufacturing

costs for several efficiency levels.

At the March 11, 1998, workshop, the Department requested cost and

consumption data for V-axis clothes washers at efficiencies of 30, 35,

and 40 percent above the baseline. The Department decided to make this

request after receiving the results of a third-party independent

testing that was conducted on top selling clothes washer models

manufactured and sold in the U.S. This testing was held in order to

determine if there was a correlation between the EF and the MEF

descriptors defined in the test procedure (Appendix J and J1) Final

Rule for clothes washers. 62 FR 45484. Since the test procedure was

recently finalized, there was no information available on the MEF

values for clothes washers currently on the market. This information is

needed to determine a distribution of shipments. The preliminary test

results indicated that there were at least two currently available V-

axis models on the market that could reach efficiency levels near a 30

percent improvement level.

AHAM responded to this request for additional information on April

3 and 8, 1998. AHAM commented that the testing performed for DOE

reflects an incorrect assessment of energy efficiency on current models

and indicated that manufacturers could not achieve these levels with

traditional V-axis clothes washers. (AHAM, No. 84 and 86). Based on

follow-up testing conducted for DOE, there appears to be a significant

variation in the RMC values obtained in tests even for clothes washers

of the same model. DOE plans to further review this issue. Since the

two models approaching a 30 percent improvement in efficiency were

``super capacity'' models, the Department will try to determine if

capacity or volume effects the maximum achievable efficiency

improvement in V-axis designs. The Department seeks comment on this

issue.

i. Manufacturing Cost--Reverse Engineering. At the November 1996

workshop, it was acknowledged that Whirlpool had four patented

proprietary, working prototype designs which included both vertical and

horizontal axis platforms. (Whirlpool, No. 55L at 77). During the

workshop, Whirlpool asked that the designs be included in the

rulemaking analysis. It also indicated that it would be appropriate to

conduct an independent study to estimate the manufacturing costs of the

new designs. (Whirlpool, No. 55L at 169). Whirlpool did not see the

practicality of each manufacturer estimating the cost of the Whirlpool

designs. Estimates by other manufacturers would only be based on patent

information. Therefore it could not be expected to produce consistency

in approach or a high degree of accuracy. (Whirlpool, No. 69 at 4).

Maytag commented that the Whirlpool designs needed to be subjected

to a full and complete engineering and cost analysis by DOE. Maytag

requested that all manufacturers be given the opportunity to

participate in this process since the cost of applying these designs to

a manufacturer's own basic washer design varies greatly from

manufacturer to manufacturer. (Maytag, No. 64 at 1). GEA also stated

that the analysis needed to be expanded to cover the designs disclosed

by Whirlpool. It further stated that only a revised method focusing on

the technical know-how, manufacturing capabilities and economic

strengths of individual manufacturers would permit the proper

evaluation of the impacts on ``atypical manufacturers.'' (GEA, No. 63

at 7).

In response the Department conducted a ``tear-down'' manufacturing

cost assessment of one of the V-axis Whirlpool prototypes. The main

objective of the manufacturing cost assessment is to quantify the

differential manufacturing costs of producing high efficiency clothes

washers based on (1) the Whirlpool proprietary V-axis design, and (2)

commercially available V- and

[[Page 64352]]

H-axis designs. The overall project consists of two phases:

Phase I provides detailed cost estimates for two state-of-art, high

volume, V-axis washers as a baseline for further analysis. The major

objective of this phase is to obtain stakeholder comment on the costing

methodology and baseline costs. Preliminary results of Phase I were

presented during the March 1998 workshop. The Phase I methodology and

final results are presented in the Preliminary TSD.

Phase II will develop a differential cost estimate for the

proprietary V-axis design and for two commercially-available H-axis

clothes washers, relative to the baseline clothes washers evaluated in

Phase I. This phase is currently in progress. Preliminary results will

be made available for public review prior to publishing the NOPR.

Raytheon Appliances (now Alliance Laundry Systems LLC) had

questions regarding a number of assumptions in the reverse engineering

analysis. These assumptions concerned work shifts per day, equipment

depreciation life, capacity utilization and production volume. After

considering Raytheon's comments, the Department modified some of the

assumptions used in the manufacturing cost assessment approach.

As suggested by Raytheon, the assumption of 2.5 shifts per day was

reduced to 2.0 shifts per day. The Department agrees that 2.5 shifts

per day is high based on additional visits to several clothes washer

manufacturing plants and further discussions with manufacturing staff

in the industry. Originally, 2.5 shifts per day was chosen based on an

average of 2 shifts per day for assembly operations and 3.0 shifts per

day for fabrication processes (pressing, machining, injection molding,

etc.). The baseline manufacturing cost analysis has been revised to

reflect an average of 2.0 shifts per day for the plant.

The assumption of a 15-17 year lifetime for baseline equipment

depreciation life was not changed to 5-7 years as suggested. Based on

the Department's industry structure analysis from publicly available

sources, the Department believes a 5-7 year life would be considered

too short for an average equipment depreciation life. Although some

equipment does have a relatively short service life (hand tools

1 year), an average of 15-17 years is more appropriate for

the overall plant and equipment. In the analysis, various equipment

depreciation lives are used depending on the specific type of

equipment. When summarizing the total investment, the overall average

is approximately 15 years.

As suggested by Raytheon, the 100 percent capacity utilization

assumption was reduced. However it was reduced to 95 percent not 80-90

percent as proposed. Although 100 percent utilization might seem

unrealistic, many operations run at or above capacity, depending on

current market conditions. Since utilization is dependent on the

market, the Department has reduced the utilization to 95 percent to

reflect the less than ideal situation. The Department did not lower the

utilization to 80 or 90 percent since current market conditions for

most manufacturers would indicate higher production. Furthermore, the

theoretical ``greenfield'' (entirely new) plant for the baseline unit

assumed that construction and sizing were based on current sales and

appropriate market forecasts.

The current assumption of a production rate of 1.5 million units

per year remains unchanged even though it does not represent a smaller

manufacturer such as Raytheon Appliances. The Department is aware that

1.5 million units is not representative of the smaller (or larger)

manufacturers, but does represent a median volume. At this time, the

Department is keeping the production volume for the ``greenfield''

plant at 1.5 million units per year; however, DOE will be investigating

an alternative scenario for a low volume (1 to AHAM. This approach

entails creating manufacturer mark-up scenarios by conducting a

financial analysis using the Government Regulatory Impact Model (GRIM).

The GRIM is a standard annual cash flow analysis which uses price,

quantity, and cost information to assess the impact of regulatory

conditions on manufacturer income and cash flow. The model calculates

the actual cash flows, by year, and then determines the present value

of those cash flows, both without regulations and with regulations. The

post-standard retail prices required in order to achieve several

scenarios will be found by running the GRIM and treating manufacturer

price as a variable. Additional price (mark-up) scenarios that might be

considered include: (1) the price (mark-up) resulting in maintenance of

current industry value; (2) the price (mark-up) reducing industry value

to zero; and (3) the price (mark-up) resulting from pass-through of

incremental material, labor, and burden costs only.

---------------------------------------------------------------------------

\1\ Arthur D. Little, Inc., Financial Impact of DOE Top Loading

Horizontal Axis Standards on U.S. Washing Machine Manufacturers,

Report to Association of Home Appliance Manufacturers Horizontal

Axis Task Force, August 1991. Page 19. (Speed Queen Company, No. 15,

Appendix G)

---------------------------------------------------------------------------

The Department received three comments on the subject of

manufacturer mark-up. Raytheon commented that the low end of 1.00 for

the range of manufacturer mark-up should not be used. It recommended

that the economic justification involve not only full production costs

but all anticipated costs. (Raytheon, No. 91, at 1). GEA commented that

the Department's conclusion on the estimated manufacturer price was

erroneous. GEA pointed out that the Department had inexplicably

transformed an average manufacturer mark-up of 1.35 into an upper

bound. (GEA, No. 88 at 3-4). Whirlpool submitted that an estimation of

average manufacturer mark-up of 1.18 is acceptable at this point in the

rulemaking. (Whirlpool, No. 93, at 4). In response to these comments,

the Department notes that a simple pass through of incremental material

costs coupled with declining volumes has been suggested in a previous

industry submital as the ``the most likely scenario.'' As described

previously, the Department proposes to use the GRIM model to conduct

scenario analysis on manufacturer mark-ups to keep the set of

assumptions for all analysis sections consistent with one another. The

GRIM will use price-volume interactions and manufacturers will be able

to comment on the likely price scenario for different efficiency

levels. Shipment data will be obtained from the NES spreadsheet model

described in Section II.E.1. It may be reasonable to assume that the

ability to pass through incremental costs will vary as costs increase

and/or product attributes are changed.

The American Council for an Energy-Efficient Economy (ACEEE)

commented that, at the March 1998 workshop, the Circuit City

representative suggested that assuming an average 40 percent retail

markup is probably too high. A 25 percent retail markup was more

typical of the industry. The 40 percent estimate may have factored in

higher markups on extended warranties and other services. (ACEEE, No.

94 at 3). In reviewing Circuit City's comment, the Department

understands that the statement referred to a gross margin of 25 percent

which represents a mark-up of 1.33. This is in close agreement with the

Department analysis of retailer financial statements having an

important component of

[[Page 64356]]

appliances in their product mix ( 25.2 percent to 26.3 percent gross

margin). Also, as referenced in the Preliminary TSD, this gross margin

is the net of some buying and warehousing costs. At present the

Department has no basis for changing the retail mark-up assumption. DOE

will continue to research data sources and seeks comment on this issue.

Energy Prices: The LCC spreadsheet model samples the individual

prices paid by households in RECS(93) (latest published version of

RECS). These prices are updated (scaled up or down based on AEO 1998

national prices) and converted to 1997 dollars.

Energy Price Trend: Several possible fuel price scenarios are built

into the LCC spreadsheet model, including: (1) constant; (2) AEO 1998

reference case; (3) Gas Research Institute 1998 (GRI 1998); (4) high

growth; and (5) low growth. High growth and low growth currently refer

to AEO 1998 fuel price scenarios for high and low economic growth. GEA

indicated that the Department needs to take additional steps in

revising the LCC analysis. Everything in recent experience shows that

energy prices continue to decline faster than the forecasters' ability

to discern, but the Department continues to build in high price

assumptions.

ACEEE indicated that the EIA residential electricity price forecast

used in the analysis is too low. It recommends that DOE focus on the

EIA ``high economic growth'' case price projections. This case calls

for an average residential electricity price decrease of 8.3 percent

over the 1996-2010 period. (ACEEE, No. 94, at 3).

In the future, as discussed in the Department's response to the

Advisory Committee, the Department will review the range of scenarios

used in the AEO to establish the scenarios with the highest and lowest

energy prices in the sector and fuel of interest. The most recent DOE

AEO 1998 reference case provides a well-defined scenario. Sensitivities

both above and below these values can also be modeled in the AEO low

and high growth cases. For the above reasons AEO 1998 was used as the

forecast used in the preliminary analysis. The range of energy prices

represented by these scenarios and the underlying assumptions will be

made available to stakeholders for comments. This process will result

in defining a likely high and low bound on the energy price trend.

Water and Sewer Prices: Information on water prices is not as

readily available as fuel prices information. Some utilities have large

fixed charges, while others are subsidized or paid for through taxes.

Furthermore, there are no standard approaches to calculating water and

sewer costs. In some locations the price of water increases as

consumption increases. In other areas, water price decreases with

increasing consumption. Additional consideration must be given to

consumers who are not connected to a municipality water supply or

sewage system. In some cases, only one or the other is connected. As

with other variables, the Department plans to use a range of water

prices in the economic analysis to account for the variability among

different households.

The main source of data on water and sewer prices is 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. These adjusted values are the basis for the water price used in

the preliminary analysis. For the NOPR analysis DOE plans to update the

1994 prices.

Water Price Escalator: The Department has found no national level

water price forecasts. Currently, DOE's analysis assumes that future

water rates are constant. Whirlpool stated that recent studies (Ernst &

Young, 1994 National Water and Wastewater Rate Survey; Raftelis

Environmental Consulting Group, 1996 Water and Wastewater Rate Survey)

show that water and wastewater charges have increased steadily each

year during the period from 1986 to 1996. This trend should be expected

to continue and should be reflected in the LCC calculations.

(Whirlpool, No. 93 at 2).

ACEEE stated that the present analysis is much too conservative

because it assumes that water prices will not increase in real terms.

Submitted for the docket was a just-published study by Osann and Young

which summarized typical water/sewer bills over the 1986-1996 period.

ACEEE recommended that a water/sewer bill inflation rate in the 1.1--

2.7 percent range (real) be incorporated into the economic analysis.

(ACEEE, No. 94 at

2-3).

The study referred to in the ACEEE comment (Osann and Young) shows

an average annual increase of 5.7 % for a residential water/sewer bill

over the 1986-1996 time period. Since the underlying inflation rate

given was 3.1% this provided an annual increase in water/sewer bills of

approximately 2.6% real. In another analysis, using EPA data, in the

(Osann and Young) report, infrastructure needs were estimated to be

$280 billion. Accounting for the total gallons used and a discount

rate, a rate increase of 1.1% (real) was estimated. The ACEEE comment

refers to total cost increases and does not specify what portion of the

increase can be assigned to an increase in marginal rate. The ACEEE

comment recommends a water/wastewater escalation rate of 1.1 to 2.7%

real but does not provide a single value or a distribution.

The Department agrees that future water prices should not be

assumed to be constant and is therefore in the process of further

analyzing both current prices and future escalation rates. The proposed

analysis is on going and will be completed after the ANOPR is released.

The proposed analysis consists of updating previous data from Ernst and

Young report as adjusted by Al Dietemann, as well as the use of new

data obtained from the American Water Works Association (AWWA). The

Ernst and Young data is being updated by calling 125 utilities, getting

their water rate schedules and their forecasts for the future, as well

as any historical information available. The Department is working on

combining these two data sources into one database. This data will be

organized by utility and can be mapped onto either individual RECs

households or onto regional areas. A distribution of water prices (as

in the current analysis) will be used, as well as a distribution of

escalation rates. In an attempt to be consistent with the methodology

being developed for fuel rates, the Department will attempt to

establish marginal water rates and water prices and escalation rates

that vary with the water/wastewater utility. The Department is seeking

comments concerning this approach.

Energy consumption per cycle: The energy use information used to

calculate LCC is taken from the engineering analysis and adjusted to

account for variability in field conditions. This adjustment is for the

loads of laundry washed per week, which varies from house to house. It

is expressed as a distribution of wash cycles per year that is obtained

from the RECS.

Several comments were received on the subject of RECS data. The use

of outdated RECS data, especially that related to family size and

annual loads, must be discontinued if a truer picture of potential

savings is to be drawn. (GEA, No. 88, at 3). Whirlpool noted that a

concern was raised at the March, 1998 workshop about the use of 1993

RECS data for the distribution of gas vs. electric water heaters and

dryers, family size and number of wash loads per year. Whirlpool agrees

that the RECS data could be brought up to date, but this is not a high

priority. Whirlpool argues that the use of the currently available

[[Page 64357]]

RECS data will not weaken any of the analyses for this rulemaking.

(Whirlpool, No. 93 at 1). DOE intends to use updated RECS data when it

becomes available.

Manufacturing cost: The LCC spreadsheet is organized so that a

range (incorporating variability and uncertainty) can be entered to

describe the manufacturing costs associated with increases in energy

efficiency. Efficiency improvements over the baseline model can be

selected in increments of 5 percent up to a 50 percent efficiency

improvement. The cost data used was provided by manufacturers. It was

then compiled and reported to the Department by AHAM.

Operating cost: ACEEE stated that the present analysis ignores the

possibility that some consumers will use less detergent with new high-

efficiency machines than with standard machines. It recommends that DOE

construct two alternative scenarios (one in which no detergent will be

saved and the other that assumes some consumers will use less

detergent). ACEEE indicated that the Bern Kansas study provided some

evidence for detergent savings. (ACEEE, No. 94 at 2). Procter and

Gamble commented that the perception that detergent dosage will be

reduced in horizontal axis or drum washers proportionally to water

volume is invalid. While this appears to be a popular belief, the

detergent dosage is not substantiated by the facts. Procter and Gamble

further stated that the important impact is that users of new lower

water use/energy efficient washers cannot expect to find detergent cost

savings. (Procter & Gamble, No. 9 at 1). DOE seeks additional data on

this issue.

ii. Payback Analysis (Distribution of Paybacks). Payback is

calculated based on the same inputs used for the LCC analysis (with the

difference that the values are based only on the first year the

standard takes effect). The output is a distribution of payback

periods. The mean payback period is also reported. Additional

information is available in the LCC spreadsheet but is not reported in

the Supplemental ANOPR or Preliminary TSD. This data includes charts of

cash flow taking into account the changing annual fuel prices.

In order to compare the Payback Periods to the distribution of

washer efficiencies, the LCC spreadsheet will be modified to enable the

user to input the market share of each washer efficiency level in 5

percent increments.

iii. Rebuttable/Test Procedure Payback. The payback for purposes of

the rebuttable presumption clause is calculated on the LCC spreadsheet

but without using any distributions or Crystal Ball. Payback periods

are first calculated between the new standard level and each washer

efficiency being sold in the year 2003. The paybacks are then weighted

and averaged according to the percentage of each washer efficiency sold

before a new standard is enacted. Rather than distributions, single

point values for the inputs are used. These values (including cycles

per year, electric fuel source, etc.) will correspond to those outlined

in the DOE test procedure, Appendix J1. The result is a single payback

value and not a distribution. The payback is calculated for the

expected effective year of the standard (e.g., 2003). Examples and

further details are presented in the TSD.

With the presently available data, the baseline efficiency level is

weighted with market shares of 94.5 percent for vertical axis washers

(baseline) and 5.5 percent for horizontal axis washers (35 percent

efficiency improvement). If available, data on a forecasted

distribution of washer efficiencies in the year 2003 will be used to

refine the above calculations for the NOPR analysis.

2. Preliminary Results

a. General. Calculation of LCC captures the tradeoff between the

purchase price and operating expenses for appliances. In addition, two

other measures of economic impact are calculated: distributions of

payback periods and a payback period calculated for purposes of the

rebuttable presumption clause. The outputs of the LCC spreadsheet

include distributions of the impact for each energy efficiency level

compared to the baseline. A variety of graphic displays illustrate the

implications of the analysis results. These include: (1) A cumulative

probability distribution showing the percentage of U.S. households

which would have a net saving by owning a more energy efficient

appliance, and (2) a chart depicting the variation in LCC for each

efficiency level considered.

b. Product Specific. This section presents preliminary results for

LCCs and payback periods for all efficiency levels in the engineering

analysis. Since the value of most inputs are uncertain and must be

represented by a distribution of values rather than a discrete value,

the results presented in the Preliminary TSD are also described by a

distribution of values. Tables 3 and 4 provide a brief overview by

showing percentile LCCs and payback periods, respectively, for the

efficiency level improvements. These tables are generated with the

current LCC spreadsheet and have not yet taken into account a

distribution of pre-new-standard washer efficiencies, but instead are

based on the AHAM baseline value. Greater detail is provided in the

Preliminary TSD.

The LCC spreadsheet calculates and reports changes in LCC (delta

LCC). The output is a distribution best illustrated by the cumulative

charts for LCC difference shown in the Preliminary TSD. The convention

is used whereby all values in parentheses are negative. Negative delta

LCCs mean that the LCC after standards is lower than that without

standards (i.e., the base case).

Table 3 showing the percentiles of LCC change is best described by

an example. The 0 percent value means that all delta LCCs are greater

than the value shown. The value for the 50th percentile means half of

the delta LCCs are higher and half are lower. The 100 percent value

means that 100 percent of the calculated values of delta LCC are less

than the shown value.

Taking the first row (5 percent efficiency level) as an example,

the values are interpreted as follows. The value shown for 0 percent

means that there is a 0 percent probability that a household will have

a reduction in LCC larger than the $83 in absolute value. Toward the

middle, there is a 50 percent probability that a household will have a

reduction in LCC larger than $16. The 100 percent column indicates that

there is a 100 percent probability that a household will have a

reduction in LCC larger than $2.

The column labeled ``mean'' refers to the mean of the distribution.

In other words, the average of all of the results of the Monte Carlo

runs.

The column labeled ``percent with LCC less than the baseline''

establishes at what percentile there will not be any difference in LCC

between the standards case and AHAM baseline (i.e., the delta LCC is

0). For example, for the first row of the table (5 percent energy

efficiency increase level), there is a 100 percent probability that

households will have a lower LCC if a standard were enacted. For the 50

percent efficiency level, there is a 74.2 percent probability that

households will have a lower LCC (In other words, 74.2 percent of

households will have a lower LCC if a 50 percent standard level is

enacted).

[[Page 64358]]

Table 3.--Percentile LCC

--------------------------------------------------------------------------------------------------------------------------------------------------------

Change in Percent with LCC less than baseline

LCC from ---------------------------------------------------------------------------------------

baseline \1\

shown by

percentiles

Percent efficiency level of the

distribution 0 10 25 50 75 90 100 Mean

of results

\2\ (values

in $)

--------------------------------------------------------------------------------------------------------------------------------------------------------

5................................................ ($83) ($33) ($24) ($16) ($11) ($8) ($2) ($19) 100.0

10................................................ ($232) ($82) ($55) ($36) ($23) ($15) $13 ($43) 99.5

15................................................ ($402) ($140) ($90) ($55) ($33) ($19) $63 ($68) 95.6

20................................................ ($504) ($161) ($98) ($55) ($26) $10 $129 ($67) 86.7

25................................................ ($1,486) ($465) ($303) ($164) ($67) $4 $137 ($205) 89.2

35................................................ ($1,997) ($639) ($408) ($211) ($59) $79 $570 ($252) 83.4

40................................................ ($2,039) ($649) ($412) ($207) ($64) $75 $645 ($253) 83.7

45................................................ ($2,068) ($606) ($365) ($155) $9 $159 $666 ($199) 73.6

50................................................ ($2,075) ($617) ($374) ($156) $6 $153 $571 ($204) 74.2

--------------------------------------------------------------------------------------------------------------------------------------------------------

\1\ The baseline LCC, based on SWA of the most likely costs, is $1,554.

\2\ For sample size of 10,000 trials. Energy price trends are for AEO 1998. Operating costs include water prices. No escalator is assumed for water

price.

Table 4.--Payback Period

--------------------------------------------------------------------------------------------------------------------------------------------------------

Payback period in years shown by percentiles of the distribution of results \1\

Percent efficiency level ---------------------------------------------------------------------------------------

0 10 25 50 75 90 100 Mean

--------------------------------------------------------------------------------------------------------------------------------------------------------

5.............................................................. 0.0 0.0 0.0 0.0 0.0 0.2 3.7 0.1

10.............................................................. 0.0 0.0 0.0 0.1 0.5 1.6 15.8 0.6

15.............................................................. 0.0 0.0 0.1 0.2 0.6 4.1 40.7 1.4

20.............................................................. 0.0 0.1 0.2 0.5 5.2 10.8 57.9 3.6

25.............................................................. 0.0 0.8 1.8 3.6 6.0 8.8 34.5 4.4

35.............................................................. 0.8 2.0 2.8 4.2 6.9 11.4 49.8 5.8

40.............................................................. 0.7 2.0 2.8 4.3 6.9 11.4 57.8 5.8

45.............................................................. 0.7 2.4 3.6 5.8 9.3 13.9 54.0 7.2

50.............................................................. 0.9 2.7 3.8 5.9 9.1 13.5 54.5 7.2

--------------------------------------------------------------------------------------------------------------------------------------------------------

\1\ For sample size of 10,000 trials. Energy price trends are for AEO 1998. Operating costs include water prices. No escalator is assumed for water

price.

Table 5 below shows the simple payback for purposes of the

rebuttable presumption clause. This means it follows test procedure

assumptions for electric water heaters and dryers.

Table 5.--Rebuttable Presumption Payback in Years \1\

------------------------------------------------------------------------

0 35

percent percent Weighted

Percent efficiency level to to payback

standard standard

------------------------------------------------------------------------

5........................................ 0.1 NA 0.1

10........................................ 0.2 NA 0.2

15........................................ 0.6 NA 0.6

20........................................ 1.8 NA 1.8

25........................................ 2.7 NA 2.7

35........................................ 3.7 NA 3.7

40........................................ 3.7 3.7 3.7

45........................................ 4.9 29.2 6.2

50........................................ 5.0 19.6 5.8

------------------------------------------------------------------------

\1\ Market shares of 94.5 percent V-axis and 5.5 percent H-axis are

assumed for the year 2003.

E. Preliminary National Impacts Analysis

The national impacts analysis assesses the net present value (NPV)

of total consumer LCC, energy (and water, if appropriate) savings and

indirect employment impacts. A preliminary assessment of the aggregate

impacts at the national level is conducted for the ANOPR. Analyzing

impacts of Federal energy-efficiency standards requires a comparison of

projected U.S. residential energy consumption with and without

standards. The base case, which is the projected U.S. residential

energy consumption without standards, includes the mix of efficiencies

being sold at the time the standard becomes effective. Sales

projections together with efficiency levels of the washers sold, are

important inputs to determine the total energy consumption due to

clothes washers under both base case and standards case scenarios. The

differences between the base case and standards case provides the

energy and cost savings. Depending on the analysis method used, the

sales under a standards case projection may differ from those of a base

case projection.

The Department estimates national energy and water, if applicable,

consumption for each year beginning with the expected effective date of

the standards. National annual energy and water savings are calculated

as the difference between two projections: a base case and a standards

case. Analysis includes estimated energy savings by fuel type for

electricity, natural gas, and oil. Energy consumption and savings are

estimated based on site energy (kWh of electricity, million Btu of

natural gas or oil used in the home), then the electricity consumption

and savings are converted to source energy.

DOE agrees with the Advisory Committee's recommendation that the

assumption of a constant conversion factor should be dropped in favor

of a conversion factor that changes from year

[[Page 64359]]

to year. The conversion factor would be calculated for each year of the

analysis based on the generating capacity displaced and the amount of

site energy saved (see detail procedure below). For future conversion

factors, DOE proposes to use the following method:

(1) Start with an integrated projection of electricity supply and

demand (e.g., the NEMS Annual Energy Outlook reference case), and

extract the source energy consumption.

(2) Estimate projected energy savings due to possible standards for

each year (e.g., using the NES spreadsheet).

(3) Feed these energy savings back to NEMS as a new scenario,

specifically a deviation from the reference case, to obtain the

corresponding source energy consumption.

(4) Obtain the difference in source energy consumption between this

standard level scenario and the reference case.

(5) Divide the source energy savings in Btu, adjusted for class

specific transmission and distribution losses, by the site energy

savings in kilowatt-hours to provide the time series of conversion

factors in Btu per kilowatt-hour.

The resulting conversion factors will change over time, and will

account for the displacement of generating sources. Furthermore, the

NES spreadsheet models will include a clearly defined column of

conversion factors, one for each year of the projection. DOE and

stakeholders can examine the effects of alternative assumptions by

replacing this column of numbers.

Measures of impact reported include the NPV of total consumer LCC,

NES and water savings, if appropriate, and indirect employment impacts.

Each of the above are determined for selected trial standard levels.

These calculations are done by the use of a spreadsheet tool called the

NES Spreadsheet Model, which has been developed for all the standard

rulemakings and tailored to each specific appliance rulemaking.

1. National Energy Savings (NES) Spreadsheet Model

a. General. In order to make the analysis more accessible and

transparent to all stakeholders, a spreadsheet model was developed

using Microsoft Excel in Windows 95 to calculate the national energy

and water savings, and the national economic costs and savings from new

standards. Input quantities can be changed within the spreadsheet. For

example, the markup factor to determine retail price from the

manufacturing cost can be easily changed in the spreadsheet. Unlike the

LCC analysis, in the NES Spreadsheet, distributions are not used for

inputs or outputs. Sensitivities can be demonstrated by running

different scenarios.

One of the more important components of any estimate of future

impact is shipments. Forecasts of shipments for the base case and the

standard case need to be obtained as an input to the NES.

The most basic method for forecasting future shipments is a simple

saturation-based method which assumes saturations remain unchanged and

solves for a growth rate in shipments sufficient to keep saturations

constant in light of population growth. There are several factors that

can make this estimate inaccurate. These factors include possible

changes in: the number of households, saturation levels, appliance

lifetimes, prices (including operating costs), and consumer decisions

about whether to repair rather than replace an appliance. Because of

these complexities, and to improve on the forecasts, the following four

different statistical models were studied.

Auto-Regressive Moving Average (ARIMA) Model

Under this model, a univariate time series data analysis approach

is used to predict future values of a time series using only its

current and past data. The advantage of the ARIMA univariate approach

is that only time series data is needed to run the model. The

disadvantages of this approach are that (1) historical trends may not

be a good guide to the future, and (2) the model cannot explicitly

account for changes in the number of households, percent of household

owning washers, price, or operating expense.

AHAM has commented that it believes that the use of regression

analysis is inappropriate to project shipments of washers to the year

2030. AHAM suggests that a time series (ARIMA) type model is better.

AHAM commented that since the method presented at the July 23, 1997,

workshop seems to be heavily based on assumptions regarding the

saturation of certain housing types, the Department needs to provide

these underlying assumptions prior to any calculation of NES. (AHAM,

No. 76.) An ARIMA type model is among those being analyzed to obtain

shipment forecasts by the Department.

Multi-Variate Time Series Fit

In addition to the ARIMA univariate process for projecting sales, a

multi-variate time series data analysis was also reviewed. This

analysis is based not only on sales but new housing starts as well. The

advantage of the multi-variate time series method is that only two time

series are needed to build the model (i.e., shipments from the previous

year and the change in the number of households from the previous

year). The disadvantages of this approach are that (1) again,

historical trends may not be a good guide to the future, and (2) the

model cannot explicitly account for replacement sales, changes in

saturation, price, and operating cost.

Saturation/Lifetime Model

A saturation/lifetime (S/L) model was developed as yet another

alternative for forecasting sales. The S/L model assumes that the

saturation of an appliance varies with time. Appliance removals are

based upon assumptions regarding the distribution of the appliance

lifetimes, and the above functional form of the model allows for

flexibility in that different assumptions regarding saturations and

lifetimes can be used in an attempt to get the best fit to historical

data. The advantages of the saturation/lifetime method are that (1) the

method explicitly accounts for lifetimes, (2) housing and saturation

stocks are based only on time-series data, so that different housing

and saturation fits can be used to get ``good'' fits to historical

sales. The disadvantages of this approach are that (1) removals must be

based on assumptions about lifetimes, and (2) the model cannot

explicitly account for the impact of price and operating cost on

housing and saturation stocks.

Accounting Model

The accounting model seeks to forecast shipments by determining

sales destined for new homes plus the additional sales meant to replace

appliances being retired from service. For those sales meant for the

replacement market, the model accounts for the impact of homes which

are being retired from the existing housing stock. The advantages of

the accounting model are that (1) it is a straightforward and simple

model, (2) it explicitly accounts for new appliances separately in new

houses and replacements, and (3) price and operating costs can be

incorporated into saturation terms. The disadvantages of the accounting

model are that (1) saturations of appliances in new and stock homes

must be forecasted, (2) housing starts must be forecasted (e.g., based

on AEO projections), and removals must be based on assumptions about

lifetimes.

Table 6 shows the degree to which each approach accounts for

different variables that impact actual shipments.

[[Page 64360]]

Table 6.--Variables Accounted for by Different Forecast Approaches

----------------------------------------------------------------------------------------------------------------

Variable accounted for:

---------------------------------------------------------------------

Model Price and

Washer sales Number of Saturation Washer operating

households lifetime cost

----------------------------------------------------------------------------------------------------------------

ARIMA..................................... X ............ ............ ............

Multi-variate............................. X X ............ ............ ............

Saturation/Life........................... X X X X ............

Accounting................................ X X X X X

----------------------------------------------------------------------------------------------------------------

Among the important drivers of energy consumption are: voluntary

programs promoting higher energy efficiency products and consumers

response to changes in price and operating expense. The extent to which

voluntary programs may increase the share of energy efficient products,

prior to the implementation date of any new standards, is estimated in

the base case. How consumers respond to changes in prices and operating

expenses can be expressed by means of elasticities. An elasticity is

the percent change in one quantity in response to a percent change in a

driving variable. Elasticity will be taken into account if a method of

quantifying the price elasticity can be developed or perhaps several

scenarios can be modeled.

Other quantities in the NES spreadsheet are: energy price

projections including an analysis of consumer marginal energy rates for

each fuel (See Section II.D.1.a); effective date of the standard (start

year); discount rate and the year of the NPV (1997); manufacturing

cost; appliance purchase price; water cost and escalation rate;

baseline energy use;, impacts of other appliances applicable to the

rulemaking analysis; lifetime; fuel mix; and the conversion factor from

site to source energy.

The energy savings and NPV are calculated from the expected date

any standard level would take effect to the year 2030. Both individual

year and cumulative data are generated. Output charts and tables

provide: cumulative energy and water savings, (where applicable), the

cost and savings per year (in a chart) and the cost and NPV due to

standards.

b. Product Specific. The model to be used for the clothes washer

rulemaking is the one described above in Section II.E.1.a. Following is

a discussion of the application of this model for the clothes washer

rulemaking analysis.

Table 7 shows the assumptions used in NES for the preliminary

analysis which are summarized below and discussed in greater detail in

the Preliminary TSD.

Table 7.--Assumptions Used for Generating Preliminary National Impacts

------------------------------------------------------------------------

------------------------------------------------------------------------

Fuel Price............................. EIA Annual Energy Outlook 1998

to the year 2020 and

extrapolated to the year 2030.

Water Price............................ Average--$3.18 per 1000

gallons.

Discount Rate and the Year of the NPV.. 7 percent discounted to the

year 1997.

Start Year for New Standards........... 2003.

Annual Real Change in Water & Sewer 0 percent.

Cost (water price escalator).

Manufacturing Cost..................... Shipment-weighted average of

the most likely (from AHAM

data).

Total Mark up on Manufacturer Costs.... 1.731.

Energy Consumption Data............... AHAM data.

Clothes Washer Shipments............... Assumed same for standards and

base case (inelastic to price

and energy savings).

Percent Horizontal-Axis Washers........ 1.5 percent in 1995, increasing

by 0.5 percent each year.

Primary Energy Conversion Factors...... AEO 1998.

------------------------------------------------------------------------

Fuel Price: The energy price scenarios to be considered for the

clothes washer analysis include: AEO 1998 reference; GRI 1998; and high

and low cases (which are currently AEO high and low economic cases.)

Other boundary cases may be analyzed in response to the Advisory

Committee on Appliance Energy Efficiency Standards recommendations

relating to defining a range of energy price futures for each fuel used

in the rulemaking economic analysis. (Advisory Committee, No. 96 at 2)

(See Section II.D.1.a). See Preliminary TSD for more information on

extrapolation of prices between 2020 and 2030. The Department is

planning to revise the method contained in the current spreadsheet used

for the preliminary ANOPR analysis. AEO 1998 forecasts only go out to

the year 2020. Since the analysis needs projections to the year 2030,

other methods must be used for this time period. The Department plans

to use the EIA approach to forecast fuel prices for the Federal Energy

Management Program (FEMP). For petroleum prices, EIA uses the average

annual growth rate of the world oil price over the years 2010 to 2020

and then adds the implied refinery and distribution markups for each

petroleum product to arrive at the regional prices for the 2021 to 2030

period. Natural gas prices are similarly derived using the average

annual growth of wellhead natural gas over 2010 to 2020 and adding on

regional markups. Electricity prices are assumed to be constant after

2020 on the assumption that the transition to a restructured industry

will have been completed.

Annual Real Change in Water and Sewer Cost (water price escalator):

For the preliminary analysis the cost of water and the escalation rate

of water prices used in the analysis is specified in Table 7. For the

NOPR analysis, DOE plans to update prices and estimate future prices

and escalation rates. (See Section II.D.b.i.)

AHAM commented that the Department cannot use water savings in its

economic justification of standards. Under the provisions of NAECA,

this is not a specified consideration and is no more than a side-

benefit of the energy savings. (AHAM, No. 76 at 1.) The

[[Page 64361]]

Department believes that water savings should be accounted for. EPCA

states that in determining whether a standard is economically justified

the Secretary shall determine whether the benefits of the standard

exceed its burdens by, to the greatest extent practicable considering

``the total project amount of energy or as applicable, water savings

likely to result directly from the imposition of the standard,'' ``the

need for national energy and water conservation'' and ``other factors

the Secretary considers relevant.'' EPCA,

Sec. 325(o)(2)(B)(I)(III)(VI)(VII), 42 U.S.C.

6295(o)(2)(B)(I)(III)(VI)(VII).

Clothes Washer Shipments: In the analysis presented in the

Preliminary TSD the sales forecast for the base case and the standard

case are assumed to be the same. While DOE is reviewing the different

models to forecast shipments, shipment forecasts were created using the

Residential Energy Model (REM). The purpose for using this data is to

provide some data to demonstrate the NES methodology. This data does

not reflect how shipments will be determined. These forecasts will be

changed for the NOPR analysis.

The accounting model is still under development as price and

operating cost effects have yet to be incorporated. Research is on-

going to develop new estimates of price and operating expense

elasticities to account for: (1) changing the definition of operating

expense to include water and wastewater rates; (2) changing the

definition of the value of energy savings from average prices to

marginal rates; and (3) a longer time series to include more recent

data. Inasmuch as the accounting model is the only approach that will

take into account price and operating costs, the Department believes it

should be the primary tool for forecasting clothes washer shipments.

The Department seeks comments about the determination of price and

operating cost elasticities.

The base case assumes that clothes washers efficiencies will

increase due to non-regulatory reasons. Voluntary programs are expected

to increase the share of higher energy efficiency clothes washers sold.

The Department has reviewed existing literature relating to voluntary

programs (e.g., the Energy Star and WashWise Programs). See the

voluntary programs section of the Preliminary TSD for a summary of this

review.

Based on this review, in the preliminary analysis the impact of

voluntary programs is expressed as the percent of new clothes washers

each year that have efficiencies corresponding to those of H-axis

washers (35 percent energy reduction from the baseline MEF). The

initial share of H-axis machines is estimated to be 1.5 percent of

total washer sales in 1995. The impact of voluntary programs is

estimated to cause a 0.5 percent increase in H-axis share every year

thereafter. The current assumption is that in 2003 the percentage of

horizontal axis washers will be 5.5 percent. The energy information

used in the spreadsheet is taken from the disaggregated data provided

by AHAM for the standard level with the lowest efficiency H-axis model

(35 percent increase in energy efficiency). Additional work is underway

to estimate future efficiencies under the base case scenario. Current

estimates will be revised as additional data becomes available. The

Department welcomes any additional data useful for forecasting future

sales of high-efficiency washers due to non-regulatory reasons.

Primary Energy Conversion Factors: In the spreadsheet DOE is using

the AEO 1998 projections.

Clothes Washer Lifetime: To account for the savings over the

lifetime of new clothes washer sales, the analysis continues to the

year 2030. Clothes washers are expected to have a lifetime of about 12-

16 years. Some washers bought in 2002--prior to the new standards--are

expected to be replaced as late as 2018. In those cases, one lifetime

for washers meeting the new standards will end in 2030-2034.

2. Preliminary Results

a. General. National energy consumption is calculated for the base

case and each candidate standards level by multiplying the number of

clothes washers by vintage times unit energy consumption by vintage.

The vintage is the age of the washer (one-year old up to sixteen-years

old). National annual energy savings are calculated as the difference

between two projections: a base case (without new standards) and a

standards case. Cumulative energy and water savings, if appropriate,

are the sum of the annual national energy or water savings,

respectively, over several time periods (e.g., 2003-2010, 2003-2020,

and 2003-2030).

Once the energy savings have been determined, economic impacts are

calculated. The primary metric for measuring national economic impact

is the NPV. NPV (of total life-cycle costs) is the difference between

the present value of the energy savings over the life of the appliance

and the present value of (usually increased) initial costs of a more

efficient appliance. The NPV calculations also captures any differences

in installation or maintenance costs. On a national level the

efficiencies and number of appliances sold each year are also taken

into account. Another way of describing NPV is to determine the LCCs

(for all appliances sold) with and without standards and take the

difference.

Costs are typically increases in the purchase price associated with

the higher energy efficiency of appliances purchased in the standards

case compared to the base case. Costs are calculated as the difference

in the purchase price between the base case and standards case for new

appliances purchased each year multiplied by the appliance sales in the

standards case. Price increases appear as negative values in the NPV.

Savings are typically decreases in operating costs associated with

the higher energy efficiency of appliances purchased in the standards

case compared to the base case. Total operating cost savings is the

product of savings per unit and the number of units of each vintage

surviving in a particular year. Savings appear as positive values in

the NPV.

Net savings each year are calculated as the difference between

Total Operating Cost Savings and Total Equipment Costs. The savings are

calculated over the life of the appliance, accounting for the

differences in yearly energy rates.

Future annual costs and savings are discounted to the present time

and summed. The NPV is the difference between the present value of

increased costs of a more efficient appliance and the present value of

energy savings, relative to the base case expenditures. In other words

the NPV resembles the difference in total consumer LCC between the base

case and standards case, after correcting for any change in sales of

clothes washers. NPV greater than zero indicates net savings (i.e.,

that the standard reduces consumer expenditures in the standards case

relative to the base case). NPV less than zero indicates that the

standard incurs net costs.

The elements of the NPV can be expressed in another form, as the

benefit/cost ratio. The benefit is the savings in decreased energy

expenses, while the cost is the increase in the purchase price due to

standards relative to the base case. When the NPV is greater than zero,

the benefit/cost ratio is greater than one.

b. Product Specific. The results shown in Table 8 below, are based

on a single shipment weighted average (SWA) cost instead of a cost

distribution. Below is a description of the columns in the

[[Page 64362]]

Preliminary National Energy Savings Results, Table 8.

The first column shows the efficiency improvement over the base

case. This is the value of energy efficiency improvement based on the

baseline MEF provided by AHAM.

The second column shows the energy savings in quads. This

represents the amount of primary energy savings accumulated from the

years 2003 to 2030. The energy savings are a result of consumers buying

more efficient washers than they would normally have bought had no new

standard levels been enacted.

The third column shows the water savings in trillions of gallons at

the corresponding efficiency level.

The fourth column, NPV, shows the dollar savings corresponding to

the energy and water savings and accounting for increase in the

purchase price. The energy prices change from year to year and AEO 1998

projections of future prices are used.

The Preliminary TSD explains the results variables in greater

detail and has charts to accompany the tables.

Table 8.--Preliminary National Energy Savings Results (2003 to 2030

Cumulative)

------------------------------------------------------------------------

Net

Water present

Percent efficiency improvement over the Energy savings benefit

base case savings (trillion (NPV)

(quads) gallons) (billion

1997$)

------------------------------------------------------------------------

5........................................ 0.36 0.46 1.02

10....................................... 1.18 0.46 2.41

15....................................... 2.18 0.45 3.80

20....................................... 2.66 0.59 3.67

25....................................... 5.09 10.13 11.07

35....................................... 7.85 14.62 13.47

40....................................... 7.90 14.62 13.53

45....................................... 9.49 12.47 8.81

50....................................... 10.06 12.47 9.07

------------------------------------------------------------------------

3. Indirect Employment Impacts

a. General. The July 1996 Process Rule includes employment impacts

among the factors to be considered in selecting a proposed standard.

The Department estimates the impacts of standards on employment for

appliance manufacturers, relevant service industries, energy suppliers,

and the economy in general. Employment impacts are separated into

indirect and direct impacts. Direct employment impacts would result if

standards lead to a change in the number of employees at manufacturing

plants and related supply and service firms. Direct impacts will be

further discussed in the section on manufacturing analysis. Indirect

impacts are impacts on the national economy other than in the

manufacturing sector being regulated. Indirect impacts may result from

both expenditures shifting among goods (substitution effect), and

income changing, which will lead to a change in overall expenditure

levels (income effect).

Indirect employment impacts from standards are defined as net jobs

eliminated or created in the general economy as a consequence of

increased spending on the purchase price of appliances and reduced

household spending on energy. New appliance standards are expected to

increase the purchase price of appliances (retail price plus sales tax,

and installation). The same standards are also expected to decrease

energy consumption, and therefore reduce household expenditures for

energy. Over time, the increased purchase price is paid back through

energy savings. The savings in energy expenditures may be spent on

other items. Using an input/output model of the U.S. economy, this

analysis seeks to estimate the effects on different sectors, and the

net impact on jobs. National impacts will be estimated for major

sectors of the U.S. economy. Public and commercially available data

sources and software will be utilized to estimate employment impacts.

At least three scenarios will be analyzed to bound the range of

uncertainty in future energy prices. All methods and documentation will

be made available for review.

b. Product Specific. For purposes of national impact analysis,

possible indirect employment impacts for appliance manufacturers,

relevant service industries, energy suppliers, and the economy in

general (i.e., national employment) due to efficiency standards will be

analyzed. The Department is proposing to use a model, which focuses on

those sectors of the economy most relevant to buildings, developed by

the Office of Building Technologies and State Programs. This software,

IMBUILD, is a PC-based economic analysis system that characterizes the

interconnections among 35 sectors as national input-output structural

matrices. The model can be applied to future time periods. The IMBUILD

output includes employment, industry output, and wage income. The

impacts of new appliance standards are estimated in the NES spreadsheet

as household energy savings (reduced energy expenditures), and

increased appliance purchase price. These impacts are output from NES

and input to IMBUILD. Additional detail is provided in the Preliminary

TSD.

F. Consumer Analyses

The consumer analysis evaluates impacts to any identifiable groups,

such as consumers of different income levels, who may be

disproportionately affected by any national energy efficiency standard

level.

The Department could evaluate variations in regional energy prices,

water and sewer prices, variations in energy use and variations in

installation costs that might affect the NPV of a standard to consumer

sub-populations. To the extent possible, DOE obtains estimates of the

variability in each input quantity and considers this variability in

its calculation of consumer impacts. The analysis is structured to

answer questions such as: How many households are better off with

standards and by how much? How many households are not better off and

by how much? The variability in each input quantity and likely sources

of information are discussed with stakeholders.

Variations in energy use for a particular appliance can depend on

factors such as: climate, type of household, people in household, etc.

Annual energy use can be estimated by a calculation based on an

accepted test procedure or it can be measured directly in the field.

The Department could perform sensitivity analyses to consider how

differences in energy use will affect sub-groups of consumers.

The impact on consumer sub-groups will be determined using the LCC

spreadsheet model. Details of this model are explained in the LCC

section of the Preliminary TSD. Of particular interest is the potential

effect of standards on households with different income levels.

1. Purchase Price

a. General. The Department will be sensitive to increases in the

purchase price to avoid negative impacts to identifiable population

groups, such as consumers of different income levels. Additionally, the

Department will assess the likely impacts of an increased purchase

price on product sales and fuel switching.

b. Product Specific. In order to determine the effect of an

increase in the purchase price, it would be useful to know what the

elasticity of clothes washer prices is. The Department is still

determining how these data could be obtained. While preliminary

analyses indicate that factors, such as the current state of the

economy have a greater correlation to sales of washers than do an

increase in clothes washer prices, it is still important to estimate

the impact

[[Page 64363]]

of changing prices on the sales of clothes washers. In making estimates

of these price effects, the Department needs to gauge the difference in

clothes washer sales from a change in the price of all clothes washers,

as could result from revised energy efficiency standards. In addition,

the Department will be estimating how price changes from revised energy

efficiency standards for clothes washers will affect the behavior of

consumers.

2. Consumer Participation

a. General. The Department seeks to inform and involve consumers

and consumer representatives in the process of developing standards.

This includes notification of consumer representatives during the

rulemaking process and where appropriate, seeking direct consumer

input.

b. Product Specific. The Act requires that ``the Secretary

consider, among other factors, if any lessening of the utility or the

performance of the products is likely to result from the imposition of

the standard. EPCA, Sec. 325 (o)(2)(B)(I)(3), 42 U.S.C. 6295

(o)(2)(B)(I)(3). In this rulemaking because comments have been received

specifically to the consumer utility and performance of V- and H-axis

clothes washers, the Department reviewed existing literature pertaining

to these issues.

The Department has made available a ``Draft Report on Consumer

Research for Clothes Washers.'' This document is included in the

appendix of the Preliminary TSD. The report summarizes research

relative to consumer satisfaction with H-axis washing machines. Sources

and projects summarized in the report include:

Major studies by consortia,

Individual utility demand side management & market

transformation studies,

Consumer test publications,

Trade organizations, and

Government projects.

Based on the December 1997 Advisory Committee meeting, the Consumer

Subcommittee made two key recommendations to obtain consumer input:

(1) Adopt a three-step process:

Obtain background research

Hold focus groups

Conduct interviews/surveys.

(2) Initiate the consumer analysis process in the clothes washer

rule.

In accordance with the Advisory Committee's recommendations, the

Department reviewed background information regarding consumer issues

related to clothes washers as discussed in the ``Draft Report on

Consumer Research for Clothes Washers.'' At the March 11, 1998, Clothes

Washer Workshop, the background research findings were presented and a

working group was formed to develop a method for obtaining additional

consumer input pertinent to the rule. Two comments were received on the

subject of additional consumer research. ACEEE found the body of

existing studies to be fairly compelling, and did not see a need for

extensive additional work. (ACEEE, No. 94 at 4). Raytheon recommended

that consumer purchase studies should involve consumers at all income

levels and be made using existing retail prices excluding rebate

incentives, for both V-axis and H-axis clothes washers. (Raytheon, No.

91 at 2).

The working group held a conference call on April 30, 1998, to

evaluate different techniques for obtaining consumer input. Focus

groups, surveys, and a conjoint analysis were all considered. The

working group recommended a three-step approach for obtaining

additional consumer input:

(1) Develop a list of attributes. Based on the working groups'

individual members' research and knowledge. Each member has submitted a

list of clothes washer attributes valued by consumers,

(2) Conduct a consumer survey to refine the list of attributes that

would be included in a quantitative consumer analysis study,

(3) Conduct a conjoint analysis to quantitatively estimate the

value consumers place on the clothes washer attributes.

The Department must first announce the process to use for

conducting any type of public survey in the Federal Register notice in

accordance with the requirements of the Paperwork Reduction Act of

1995, Public Law 104-13 (44 U.S.C. 3506(c)(2)(A)). This will be a

separate notice which is in process of being published. The Department

will then solicit bids for a marketing research firm to conduct the

focus groups to refine the list of attributes and to conduct the

conjoint analysis.

G. Manufacturer Impact Analysis

The manufacturer impact analysis estimates the financial impact of

standards on manufacturers and calculates impacts on competition,

employment, and manufacturing capacity.

Prior to initiating the detailed manufacturing impact analysis the

Department will prepare an approach document and have it available for

review. While the general framework will serve as a guide, the

Department intends to tailor the methodology for each rule on the basis

of stakeholder comments. The document will outline procedural steps and

outline issues for consideration. Three important elements of the

approach consist of the preparation of an industry cash-flow, the

development of a process to consider sub-group cash-flow, and the

design of an interview guide.

The policies outlined in the process rule required substantial

revisions to the analytical framework to be used in performing

manufacturer impact analysis for each rulemaking. In the approach

document, the Department will describe and obtain comments on the

methodology to be used in performing the manufacturer impact analyses.

The manufacturer impact analyses will be conducted in three phases.

Phase 1 consists of two activities, namely, preparation of an industry

characterization and identification of issues. The second phase has as

its focus the larger industry. In this phase, the GRIM will be used to

perform an industry cash flow analysis. Phase 3 involves repeating the

process described in Phase 2 (the industry cash-flow analysis) but on

different sub-groups of manufacturers. Phase 3 also entails calculating

additional impacts on competition, employment, and manufacturing

capacity.

1. Industry Cash Flow

a. General. A change in standards affects the analysis in three

distinct ways. Increased levels of standards will require additional

investment, will raise production costs, and will affect revenue

through higher prices and, possibly, lower quantities sold. To quantify

these changes the Department performs an industry cashflow analysis

using the GRIM. Usually this analysis will use manufacturing costs,

shipments forecasts, and price forecasts developed for the other

analyses. Financial information, also required as an input to GRIM,

will be developed based on publicly available data and confidentially

submitted manufacturer information.

The GRIM analysis uses a number of factors--annual expected

revenues; manufacturer costs such as cost of sales, selling and general

administration costs, taxes, and capital expenditures related to

depreciation, new standards, and maintenance--to arrive at a series of

annual cash flows beginning from before implementation of standards and

continuing explicitly for several years after implementation. The

measure of industry net present values are calculated by discounting

the annual cash flows from the period before implementation of

standards to some

[[Page 64364]]

future point in time. The Preliminary TSD describes the GRIM's

operating principles and presents alternative approaches to developing

the information necessary to perform the computations.

b. Product Specific. The Department has received manufacturing cost

data from manufacturers which was compiled and reported by AHAM. This

data will be used to conduct an industry cash flow analysis for the

NOPR. A draft document ``Financial Inputs to GRIM for the Clothes

Washer Rulemaking Analysis'' has been prepared for stakeholder review.

This document outlines and documents the financial assumptions to be

used in GRIM when performing the industry cash flow analyses. The

Department intends to use the manufacturing costs, retail prices, and

shipment values from the preliminary analysis in the GRIM model. This

will be distributed to interested parties prior to the workshop to be

held after publication of this Supplemental ANOPR.

2. Manufacturer Sub-Group Analysis

a. General. Using industry ``average'' cost values is not adequate

for assessing the variation in impacts among sub-groups of

manufacturers. Smaller manufacturers, niche players or manufacturers

exhibiting a cost structure largely different from industry averages

could be more negatively impacted. Ideally, the Department would

consider the impact on every firm individually. In highly concentrated

industries this may be possible. In industries having numerous

participants, the Department will use the results of the industry

characterization to group manufacturers exhibiting similar

characteristics. The financial analysis of the ``prototypical'' firm

performed in the Phase 2 industry analysis can serve as a benchmark

against which manufacturer sub-groups can be analyzed.

The manufacturing cost data collected for the engineering analysis

will be used to the extent practical in the sub-group impact analysis.

To be useful, however, this data should be disaggregated to reflect the

variability in costs between relevant sub-groups of firms.

The Department will conduct detailed interviews with as many

manufacturers as is possible to gain insight into the potential impacts

of standards. During these interviews, the Department will solicit the

information necessary to evaluate cashflows and to assess competitive,

employment and capacity impacts. Firm-specific cumulative burden will

also be considered.

b. Product Specific. In order to conduct a manufacturer sub-group

analysis, it will be necessary to define representative sub-groups and

conduct separate cash flow analysis for each. For example, one option

consists of conducting separate cash flows for all manufacturers.

Another option, could entail conducting cash flow analysis only for

those manufacturers which believe their impacts are more severe then

industry average. The Department will outline and discuss these and

other approaches at the post supplemental ANOPR analysis workshop.

Whirlpool proposed that the GRIM model be changed from input to

output aggregation. Each industry member would develop its own inputs

to the GRIM model over a range of MEF levels proposed by the DOE. The

GRIM models would be run by industry members to generate a range of

individual company outputs. The outputs of the individual companies

could then be aggregated to determine industry impact. Individual

companies would not be required to submit detailed input assumptions,

but only changes in revenues, shipments, profit after tax, and cash

flow, capital investment and design and marketing spending could also

be provided. A third party could do the aggregation and then conduct a

reality check by comparing the aggregated output to currently available

industry data. (Whirlpool No. 66 at 3). The Department seeks further

input as to how the data for the GRIM analysis should be collected from

the manufacturers and how it should be utilized.

3. Interview Process

a. General. The revised rulemaking process provides for greater

public input and for improved analytical approaches, with particular

emphasis on earlier and more extensive information gathering from

interested parties. The proposed three-phase manufacturer impact

analysis process will draw on multiple information sources, including

structured interviews with manufacturers and a broad cross-section of

interested parties. Interviews may be conducted in any and all phases

of the analyses as determined in Phase 1.

The interview process has a key role in the manufacturer impact

analyses, since it provides an opportunity for interested parties to

privately express their views on important issues. A key characteristic

of the interview process is that it is designed to allow confidential

information to be considered in the rulemaking decision.

The initial industry characterization will collect information from

relevant industry and market publications, industry trade

organizations, company financial reports, and product literature. This

information will aid in the development of detailed and focused

questionnaires, as needed, to perform all phases of the manufacturer

impact analyses. It is the intention of the Department that the

contents of questionnaires and the list of interview participants be

publicly vetted prior to initiating the interview process.

The Phase 3 (sub-group analysis) questionnaire will solicit

information on the possible impacts of potential efficiency levels on

manufacturing costs, product prices, and sales. Evaluation of the

possible impacts on direct employment, capital assets, and industry

competitiveness will also draw heavily on the information gathered

during the interviews. The questionnaires will solicit both qualitative

and quantitative information. Supporting information will be requested

whenever applicable.

Interviews will be conducted according to DOE procedures.

Interviews will be scheduled well in advance in order to provide every

opportunity for key individuals to be available for comment. Although a

written response to the questionnaire is acceptable, an interactive

interview process is preferred because it helps clarify responses and

provides the opportunity for additional issues to be identified.

Interview participants will be requested to identify all

confidential information provided in writing or orally. Approximately

two weeks following the interview, an interview summary will be

provided to give participants the opportunity to confirm the accuracy

and protect the confidentiality of all collected information. All the

information transmitted will be considered, when appropriate, in DOE's

decision-making process. However, confidential information will not be

made available in the public record.

DOE will collate the completed interview questionnaires and prepare

a summary of the major issues and outcomes. The Department will seek

comment on the outcome of the interview process.

b. Product Specific. The Department is developing an interview

guide to supplement the sub-group GRIM cash-flow analysis. The

interview will solicit information on the possible impacts of potential

efficiency levels on manufacturing costs, product prices, and sales. As

such it will contribute to the Department's understanding of how sub-

groups may have different values for these quantities compared with the

[[Page 64365]]

overall industry. This will allow the Department to report and explain

significant variances when publishing the analysis results.

Evaluation of the possible impacts on direct employment, capital

assets, and industry competitiveness will also draw heavily on the

information gathered during the interviews. The questionnaires will

solicit both qualitative and quantitative information. Supporting

information will be requested whenever applicable.

The Department plans to make a draft of the questionnaire available

prior to the post-supplemental ANOPR analysis workshop.

H. Competitive Impact Assessment

a. General. Legislation directs the Department to consider any

lessening of competition that is likely to result from standards. It

further directs the Attorney General to gauge the impacts, if any, of

any lessening of competition. DOE will make a determined effort to

gather and report firm-specific financial information and impacts. The

competitive analysis will focus on assessing the impacts to smaller,

yet significant, manufacturers. The assessment will be based on

manufacturing cost data and on information collected from interviews

with manufacturers, consistent with Phase 3 of the manufacturer impact

analyses. The Department of Justice (DOJ) has offered to help in

drafting questions to be used in the manufacturer interviews. These

questions will pertain to the assessment of the likelihood of increases

in market concentration levels and other market conditions that could

lead to anti-competitive pricing behavior. The manufacturer interviews

will focus on gathering information that would help in assessing

asymmetrical cost increases to some manufacturers, increased proportion

of fixed costs potentially increasing business risks, and potential

barriers to market entry (proprietary technologies, etc.).

b. Product Specific. The Department met with DOJ on June 11, 1998,

for initial discussions pertaining to the manufacturer impacts of

potential clothes washers standards. DOJ has agreed to review the

manufacturer questionnaire prior to discussions with the manufacturers.

I. Utility Analysis

The utility analysis estimates the effects of proposed standards on

electric and gas utilities.

1. Proposed Methodology

a. General. The Department proposes to use a version of EIA's

widely recognized NEMS for the utility and environmental analyses. NEMS

is a large multi-sectoral partial equilibrium model of the U.S. energy

sector that has been developed over several years by the EIA primarily

for the purpose of preparing the Annual Energy Outlook (AEO). NEMS

produces a widely recognized baseline forecast for the U.S. through

2020 and is available in the public domain. The version of NEMS to be

used for appliance standards analysis will be called NEMS-NAECA, and

will be based on the AEO 1998 version with minor

modifications.2

---------------------------------------------------------------------------

\2\ EIA approves use of the name NEMS only to describe an AEO

version of the model without any modification to code or data.

Since, in this work, there will be some minor code modifications and

the model will be run under various policy scenarios that deviate

from AEO assumptions, DOE proposes use of the name NEMS-NAECA for

the model as used here.

---------------------------------------------------------------------------

NEMS offers a sophisticated picture of the effect of appliance

standards since its scale allows it to measure the interactions between

the various energy supply and demand sectors and the economy as a

whole. In addition, the scale of NEMS permits analysis of the effects

of standards on both the electric and gas utility industries.

To analyze the effect of standards, NEMS-NAECA is first run exactly

as it would be to produce an AEO forecast, then a second run is

conducted with residential energy usage reduced by the amount of energy

(gas, oil, and electricity) saved due to appliance standards for the

appliance being analyzed. The energy savings input is obtained from the

NES spreadsheet. Outputs available are the same as those in the

original NEMS model including residential energy prices, generation and

installed capacity (and in the case of electricity, which primary fuel

is used for generation).

b. Product Specific. I. Assumptions. Other than the difference in

energy consumption due to clothes washer standards, input assumptions

into NEMS-NAECA will follow those used to produce AEO 1998. The entire

utility analysis will be conducted as a policy deviation from the AEO

1998, and the assumptions will be the basic set of assumptions applied.

For example, the operating characteristics (energy conversion

efficiency, emissions rates, etc.) of future electricity generating

plant will be exactly those used in AEO 1998, and the prospects for

natural gas supply will be exactly those assumed in AEO 1998.

Since the AEO 1998 version of NEMS-NAECA forecasts only to the year

2020, a method for extrapolating price data to 2030 is required. The

adopted method uses the EIA approach to forecast fuel prices for the

Federal Energy Management Programs (FEMP). These are the prices used by

FEMP to estimate life-cycle costs of Federal equipment procurements.

For petroleum products, the average growth rate for the world oil price

over the years 2010 to 2020 is used in combination with the refinery

and distribution markups from the year 2020 to determine the regional

price forecasts. Similarly, natural gas prices are derived from an

average growth rate figure in combination with regional price margins

from the year 2020. Electricity prices are held constant at 2020 levels

on the assumption that the transition to a restructured utility

industry will have been completed.

ii. Results. In principle, any of the forecasts that appear in AEO

1998 could be estimated by NEMS-NAECA to take into account the effects

of a particular clothes washer standard level. The Department intends

to report the major results on residential sales of fuels, prices of

fuels, and generating sources displaced by energy savings. As might be

expected, as the total energy use of America is much larger than that

possible due to the savings from clothes washers, there is little

expected difference in the forecasted price of energy.

J. Environmental Analysis

An Environmental Assessment is required pursuant to the National

Environmental Policy Act of 1969 (NEPA) (42 U.S.C. 4321 et seq.),

regulations of the Council on Environmental Quality (49 CFR parts 1500-

1508), the Department regulations for compliance with NEPA (10 CFR part

1021), and the Secretarial Policy on the National Environmental Policy

Act (June 1994). The Environmental Assessment will be presented as part

of the NOPR and an opportunity will be provided for comments prior to

the final rule.

The main environmental concern addressed is emissions from fossil

fuel-fired electricity generation. Power plant emissions include oxides

of nitrogen (NOX) and sulfur (SO2), as well as

carbon dioxide (CO2). The first two are major causes of acid

precipitation, which can affect humans by reducing the productivity of

farms, forests and fisheries, decreasing recreational opportunities and

degrading susceptible buildings and monuments. NOX is also a

precursor gas to urban smog and is

[[Page 64366]]

particularly detrimental to air quality during hot, still weather.

CO2 emissions contribute to raising the global temperature

via the ``greenhouse effect.'' The long-term consequences of higher

temperatures may include perturbed air and ocean currents, perturbed

precipitation patterns, changes in the gaseous equilibrium between the

atmosphere and the biosphere, and the melting of some of the ice now

covering polar lands and oceans, causing a rise in sea level.

1. Proposed Methodology

a. General. The Department proposes to use the EIA widely

recognized NEMS for the appliance environmental analyses (as well as

the utility analyses). The version of NEMS to be used for appliance

standards analysis will be called NEMS-NAECA, and will be based on the

AEO 1998 version with minor modifications. NEMS-NAECA is run exactly

the same as the original NEMS except that residential energy usage is

reduced by the amount of energy (gas, oil, and electricity) saved due

to appliance standards for the appliance being analyzed. The input of

energy savings is obtained from the NES spreadsheet. For the

environmental analysis, the output is the forecasted physical

emissions. The net benefits of a standard will be the difference

between emissions estimated by the AEO 1998 version of NEMS-NAECA and

those it estimates with a standard in place.

b. Product Specific. The environmental analysis should be

relatively straightforward using NEMS-NAECA. Carbon emissions are

tracked in NEMS using quite a detailed carbon module that provides good

results because of its broad coverage of all sectors and inclusion of

interactive effects. The only form of carbon tracked by NEMS-NAECA is

CO2, so the carbon discussed in this report is only in the

form of CO2 but is reported as elemental carbon to remain

consistent with the AEO 1998.3

---------------------------------------------------------------------------

\3\ The conversion factor from carbon to CO2 is

approximately 3.6667.

---------------------------------------------------------------------------

The two airborne pollutant emissions that have been reported in

past analyses, SO2 and NOX, are reported by NEMS-

NAECA. In the case of SO2, the Clean Air Act Amendments of

1990 set an SO2 emissions cap on all power generation. The

attainment of this target is flexible among generators through the use

of emissions allowances and tradable permits. NEMS includes a module

for SO2 allowance trading and delivers a forecast of

SO2 allowance prices. Please note that accurate simulation

of SO2 trading tends to imply that physical emissions

effects will be zero because emissions will always be at the ceiling.

This fact has caused considerable confusion in the past. However, there

is an SO2 benefit from conservation in the form of a lower

allowance price and, if big enough to be calculable by NEMS-NAECA, this

value will be reported. Please see TSD for further discussion of this

issue. One small effect that NEMS-NAECA must consider in addition to

AEO 1998 calculations is the effect of standards on SO2

emissions from in-house combustion of oil, since the emissions cap does

not apply to households. This effect is calculated using simple

emissions factors.

The NEMS algorithm for estimating NOX emissions also

does not estimate in-house emissions, nor are the emissions calculated

for ozone non-attainment areas. In-house emissions account for the

combustion of fossil fuels, primarily natural gas, within individual

homes. Since households that use natural gas, fuel oil or coal do

contribute to NOX emissions, the effect on in-home

NOX emissions will be calculated externally to NEMS-NAECA,

using simple emissions factors.

Energy use for selected appliance efficiency levels will be the

same as those in the NES spreadsheet. Other input assumptions into

NEMS-NAECA will follow those used to produce AEO 1998. In principle,

any of the forecasts that appear in AEO 1998 could be estimated by

NEMS-NAECA to take into account the effects of a particular clothes

washer standard level, but in the standard reporting, the Department

intends to report emissions of SO2, NOX and

CO2. The time horizon of NEMS-NAECA is 2020. Beyond this

point, results will be extrapolated using a simple formula (for

methodology, see preliminary TSD) to extend the forecast to 2030.

Alternative price forecasts corresponding to the side cases found in

AEO 1998 will also be generated for use by NES and will be explored in

a similar fashion with NEMS-NAECA runs.

K. Regulatory Impact Analysis

DOE will be preparing a draft regulatory analysis pursuant to E.O.

12866, ``Regulatory Planning and Review,'' which will be subject to

review under the Executive Order by the Office of Information and

Regulatory Affairs (OIRA) 58 FR 51735 (October 4, 1993). Six major

alternatives were identified by DOE as representing feasible policy

options to achieve consumer product energy efficiency. Each alternative

will be evaluated in terms of ability to achieve significant energy

savings at a reasonable cost and will be compared to the effectiveness

of the rule.

As part of the docket for the Refrigerator Products Energy

Conservation Standards (Docket No. EE-RM93-801) AHAM stated that the

Department needs to improve the evaluation of non-regulatory means of

achieving energy savings. (AHAM, No. 207 at 7).

Under the Process Rule policies, the Department is committed to

continually explore non-regulatory alternatives to standards. In the

table below is a discussion of what was examined in 1994 and what is

being proposed for this rulemaking. The Department is seeking comments

on this approach. This approach is further discussed in the TSD.

------------------------------------------------------------------------

Alternatives to examine in

Alternatives examined in 1994 1998

------------------------------------------------------------------------

--No action............................... --No new regulatory action.

--Consumer tax credits.................... --Consumer tax credits.

--Manufacturer tax credits................ --Manufacturer tax credits.

--Performance standards................... --Performance standards.

--Consumer rebates........................ --Rebates.

--Prescriptive standards

--Voluntary standard...................... --Voluntary energy

efficiency targets.

--Enhanced labeling and consumer education

--Early replacement.

--Mass government purchases.

------------------------------------------------------------------------

III. Standards Scenarios

Upon reviewing the preliminary LCC and NES results, the Department

observes that the efficiency levels analyzed, 5 to 50 percent

efficiency improvement over baseline efficiency, produced a range of

impacts. For example, the NES impacts show a range from 0.36-10.06

quads of energy saved over the 2003 to 2030 period. As expected, the

higher the efficiency level, the greater the savings. Similarly, the

analysis shows an increase in water savings from 0.46 to 12.47

trillions of gallons saved. On the other hand, the NPV shows an

increase from $1.02 billion at the 5 percent level, to a maximum of

$13.53 billion at the 40 percent level, and then a reduction to $9.07

billion at the 50 percent level. The LCC and payback analyses show

results similar to the NPV analysis where the greatest economic benefit

is at the 40 percent level.

Based on the analyses performed, the 40 percent efficiency level

standard would appear to result in the greatest

[[Page 64367]]

economic benefit to the Nation. (See Tables 3, 4 and 8.) The national

net present benefit at the 40 percent efficiency level (which

represents an equivalent to a moderate H-axis level) is $13.53 billion.

This is approximately 22 percent higher than the NPV benefit at the 25

percent efficiency level (which represents the current highest V-axis

level) and 49 percent higher than the 50 percent level, the maximum

technologically feasible level. The LCC results in Table 3 indicate

that a 40 percent efficiency level has the greatest consumer mean LCC

savings. At 40 percent, the consumer mean LCC savings is $253, or $48

and $49 greater than the 25 and 50 percent levels, respectively. In

addition, at the 40 percent level, the range in LCC impacts is a

savings of $2,039 (0th percentile) to an increase of $645 (100th

percentile). The LCC analysis further shows that at the 40 percent

level approximately 83.7 percent of consumers will experience a LCC

savings; and that only 16.3 percent of the Nation's population will

experience an increase in LCC. Whereas, the LCC analysis indicates that

at the 25 percent efficiency level, standards will negatively impact

10.8 percent of the Nation's population and at the 50 percent level,

standards will adversely impact 25.8 percent of the population. (See

Table 3.)

Also, the rebuttable presumption payback periods shown in Table 5

indicate that all efficiency levels from 5 percent up to 25 percent

show a less than 3 year payback. The 40 percent efficiency level shows

a 3.7 year payback which represents a reasonable payback period

considering the increased energy savings at this level. There is a

significant jump in the payback period at the 45 and 50 percent

efficiency levels therefore making these efficiency levels look less

attractive.

These observations are based on preliminary LCC and NES results

which will be updated and revised in the NOPR and final rule analyses.

These observations, however, do not include analyses results from the

manufacturer impact or consumer subgroup and survey information.

The following are examples of possible alternative standards

scenarios for consideration by the Department:

A moderate standard at an early effective date. For

example, a level at a 25 percent improvement, effective three years

after the publication of the Final Rule.

A stringent standard, at a later effective date. For

example, a level at 45 percent improvement effective five years after

the publication of the Final Rule.

A two phase approach. For example, a level at 20 percent

effective three years after the publication of the Final Rule

(projected effective date--October, 2002) and a level at 40 percent

effective eight years after publication of the Final Rule.

The Department seeks comments on the alternative standard scenarios

for consideration in the analysis for the proposed rule.

IV. Public Comment Procedures

A. Participation in Rulemaking

The Department encourages the maximum level of public participation

possible in this rulemaking. Individual consumers, representatives of

consumer groups, manufacturers, associations, States or other

governmental entities, utilities, retailers, distributors,

manufacturers, and others are urged to submit written statements on the

proposal.

The Department has established a period of 75 days following

publication of this document for persons to comment on this proposal.

All public comments received will be available for review in the

Department's Freedom of Information Reading Room. In addition, the

following data is available in the Department's Freedom of Information

Reading Room:

Copies of the Preliminary TSD

Transcripts of the public hearings

Copies of the public comments received by the Department

Previous Federal Register notices relating to this clothes

washer rulemaking

A public hearing will be held on December 14 (1:00-4:00 p.m.) and

15 (9:00 a.m.-4:00 p.m.), 1998, at the U.S. Department of Energy,

Forrestal Building, 1000 Independence Avenue SW, Room 1E-245,

Washington, D.C. 20585. The December 14 session will be a training

session for the Government Regulatory Impact Model (GRIM). More

detailed information about this hearing will be on the Office of Codes

and Standards web site beginning in November. The web site address is

as follows: http://www.eren.doe.gov/buildings/codes__standards/

index.htm.

B. Written Comment Procedures

Interested persons are invited to participate in this proceeding by

submitting written data, views, or arguments with respect to the

subjects set forth in this document. Comments will not be accepted by

fax or e-mail. Instructions for submitting written comments are set

forth at the beginning of this document and below.

Comments should be labeled both on the envelope and on the

documents, ``Clothes Washer Rulemaking (Docket No. EE-RM-94-403),'' and

must be received by the date specified at the beginning of this

document. Ten copies are requested to be submitted. Additionally, the

Department would appreciate an electronic copy of the comments to the

extent possible. The Department is currently using

WordPerfectTM 6.1. All comments and other relevant

information received by the date specified at the beginning of this

document will be considered by the Department in the proposed rule.

All written comments received on the supplemental Advance Notice of

Proposed Rulemaking will be available for public inspection at the

Freedom of Information Reading Room, as provided at the beginning of

this document.

Pursuant to the provisions of 10 CFR 1004.11, any person submitting

information or data that is believed to be confidential, and exempt by

law from public disclosure, should submit one complete copy of the

document and ten (10) copies, if possible, from which the information

believed to be confidential has been deleted. The Department will make

its own determination with regard to the confidential status of the

information or data and treat it according to its determination.

Factors of interest to the Department, when evaluating requests to

treat information as confidential, include: (1) a description of the

item; (2) an indication as to whether and why such items of information

have been treated by the submitting party as confidential, and whether

and why such items are customarily treated as confidential, and whether

and why such items are customarily treated as confidential within the

industry; (3) whether the information is generally known or available

from other sources; (4) whether the information has previously been

available to others without obligation concerning its confidentiality;

(5) an explanation of the competitive injury to the submitting person

that would result from public disclosure; (6) an indication as to when

such information might lose its confidential character due to the

passage of time; and (7) whether disclosure of the information would be

in the public interest.

C. Issues for Public Comment

The Department is interested in receiving comments and data to

improve its preliminary analysis. In particular, the Department is

interested in seeking response to the following questions and/or

concerns that were addressed in this rulemaking.

[[Page 64368]]

Information on the energy efficiency and relative market shares of

current products on the market as described by the Modified Energy

Descriptor (MEF):

The Department has limited information concerning the

energy performance of existing product offerings using the MEF

descriptor. Given the vastly different nature of the variables and

testing methods of the current J and future J1 test procedures, the EF

values cannot be translated to MEF values.

Proposed product classes for products in this rulemaking:

In their written comments, Whirlpool asked the Department

to maintain the current efficiency requirement for the compact class

due to the limited potential for energy-efficient improvements and the

small market share for these products. Whirlpool also indicated that

the V-axis compact clothes washer market and the manufacturing base for

these products has changed since the current standards were developed.

The previous stand-alone 1.6 ft.\3\ compact V-axis clothes washer

products have been replaced by a product that maintains the small

cabinet (22'' width) utility and portability (via castors); however,

its basket capacity is slightly larger. Because of the limited market

size, Whirlpool is currently the only manufacturer of these products.

They also supply them to other appliance companies for sale under

various brand names. For these reasons, the Department will revise the

compact V-axis product class definition (1.6 ft.\3\ capacity) to

include all V-axis clothes washers less than 2.0 ft.\3\ (Whirlpool, No.

69 at 3). The Department plans to increase the compact class to include

all clothes washers (both V- and H-axis machines) less than 2.0 ft.\3\

and seeks comments on this change.

The Department received comments suggesting that it

identify V- and H-axis machines as a single product class. Whirlpool

stated that the DOE's analyses to date and the recent consumer

acceptance in the market of H-axis products confirm the validity of a

single product class, irrespective of the axis. Whirlpool further

stated that the concerns over clothes washer performance, consumer

utility and reliability are unfounded in either principle or fact.

(Whirlpool, No. 93 at 1.) The Natural Resources Defense Council (NRDC)

stated that the ``H-axis'' design option does not affect the utility of

clothes washers and it is not the only design option that can comply

with the standards. According to the NRDC, the evidence does not

support the establishment of different standards even if separate

classes were established. (NRDC, No. 60 at 1.)

However, other commenters feel that the Department should not

reject separate product classes. General Electric Appliances (GEA)

indicated that the Department is proceeding as if all relevant consumer

utilities are met by H-axis products already on the market or by

machines planned for production. GEA further stated that the port of

access is not the only relevant consumer utility that must be

addressed. Many other consumer utilities, including reliability, must

be addressed. (GEA, No. 88 at 2.) The Department seeks additional

comments on this issue and is currently working with stakeholders to

formulate a process to gather additional consumer input on the issues

surrounding clothes washer utility. This process is discussed further

in Section II.F.2.b.

The relationship between clothes washer capacity and the maximum

achievable efficiency using conventional V-axis designs:

AHAM commented that the testing performed for DOE reflects

an incorrect assessment of energy efficiency on current models and

indicated that manufacturers could not achieve these levels with

traditional V-axis clothes washers. (AHAM, No. 84 and 86). Based on

follow-up testing conducted for DOE, there appears to be a significant

variation in the RMC values obtained in tests even for clothes washers

of the same model. DOE plans to further review this issue. Since the

two models approaching a 30 percent improvement in efficiency were

``super capacity'' models, the Department will try to determine if

capacity or volume effects the maximum achievable efficiency

improvement in V-axis designs. The Department seeks comment on this

issue.

Data as to whether detergent use is a factor in consumer operating

cost and savings:

ACEEE stated that the present analysis ignores the

possibility that some consumers will use less detergent with new high-

efficiency machines than with standard machines. They recommend that

DOE construct two alternative scenarios (one that no detergent will be

saved and the other that some consumers will use less detergent). ACEEE

indicated that the Bern Kansas study provided some evidence for

detergent savings. (ACEEE, No. 94 at 2). Proctor and Gamble commented

that the perception that detergent dosage will reduce in horizontal

axis or drum washers essentially proportionally to water volume is

invalid. This appears to be a popular belief, but it is not

substantiated by the facts. The important impact is that users of new

lower water/energy efficient washers cannot expect to find detergent

cost savings. (Proctor & Gamble, No. 9 at 1). DOE seeks additional data

on this issue.

Data on retail mark-up assumption:

The American Council for an Energy-Efficient Economy

(ACEEE) commented that at the March 1998 workshop the Circuit City

representative suggested that assuming an average 40 percent retail

markup is probably too high. A 25 percent retail markup was more

typical of the industry. The 40 percent estimate may have factored in

higher markups on extended warranties and other services. (ACEEE, No.

94 at 3). In reviewing Circuit City's comment, the Department

understands that the statement referred to a gross margin of 25 percent

which represents a mark-up of 1.33. This is in close agreement with the

Department analysis of retailer financial statements having an

important component of appliances in their product mix (25.2 percent to

26.3 percent gross margin). Also, as referenced in the Preliminary TSD,

this gross margin is the net of some buying and warehousing costs. At

present the Department has no basis for changing the retail mark-up

assumption. DOE will continue to research data sources and seeks

comment on this issue.

Information on national level historical, current, and projections

of water and sewer rates:

Information on water prices is not as readily available as

fuel prices information. Some uti

This text is long and has been trimmed here. Open the source document for the complete record.