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Federal Register / Vol. 86, No. 11 / Tuesday, January 19, 2021 / Rules and Regulations
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of future operating costs. DOE estimated a distribution of discount rates for SEMs based on the cost of capital of publicly traded firms in the sectors that purchase SEMs.
As part of its analysis, DOE also applies weighted average discount rates calculated from consumer debt and asset data, rather than marginal or implicit discount rates.40 DOE notes that the LCC does not analyze the equipment purchase decision, so the implicit discount rate is not relevant in this model. The LCC estimates net present value over the lifetime of the equipment, so the appropriate discount rate will reflect the general opportunity cost of household funds, taking this time scale into account. Given the long time horizon modeled in the LCC, the application of a marginal interest rate associated with an initial source of funds is inaccurate. Regardless of the method of purchase, consumers are expected to continue to rebalance their debt and asset holdings over the LCC
analysis period, based on the restrictions consumers face in their debt payment requirements and the relative size of the interest rates available on debts and assets. DOE estimates the aggregate impact of this rebalancing using the historical distribution of debts and assets.
To establish residential discount rates for the LCC analysis, DOE identified all relevant household debt or asset classes in order to approximate a consumers opportunity cost of funds related to appliance energy cost savings. It estimated the average percentage shares of the various types of debt and equity by household income group using data from the Federal Reserve Boards Survey of Consumer Finances 41 SCF for 1995, 1998, 2001, 2004, 2007, 2010, 2013, and 2016. Using the SCF and other sources, DOE developed a distribution of rates for each type of debt and asset by income group to represent the rates that may apply in the year in which amended standards would take effect.
For commercial and industrial consumers, DOE used the cost of capital 40 The implicit discount rate is inferred from a consumer purchase decision between two otherwise identical goods with different first cost and operating cost. It is the interest rate that equates the increment of first cost to the difference in net present value of lifetime operating cost, incorporating the influence of several factors:
Transaction costs; risk premiums and response to uncertainty; time preferences; interest rates at which a consumer is able to borrow or lend.
41 Board of Governors of the Federal Reserve System. Survey of Consumer Finances. 1995, 1998, 2001, 2004, 2007, 2010, 2013, and 2016. Available at: http www.federalreserve.gov/econresdata/scf/
scfindex.htm.

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to estimate the present value of cash flows to be derived from a typical company project or investment. Most companies use both debt and equity capital to fund investments, so the cost of capital is the weighted-average cost to the firm of equity and debt financing.
This corporate finance approach is referred to as the weighted-average cost of capital. DOE used currently available economic data in developing discount rates. In response to the April 2020
NOPD, DOE did not receive any comments on discount rates. DOE used the same approach for developing discount rates as in the April 2020
NOPD for this final determination. DOE
updated data sources to the most recent information available. See chapter 8 of the TSD for details on the development of end-user discount rates.
8. Efficiency Distribution in the NoNew-Standards Case To accurately estimate the share of consumers that would be affected by a potential energy conservation standard at a particular efficiency level, DOEs LCC analysis considered the projected distribution market shares of equipment efficiencies in the no-newstandards case i.e., the case without amended or new energy conservation standards in the compliance year. In its analysis for the March 2010 Final Rule, DOE developed no-new standards case efficiency distributions based on the distributions of then currently available models for which SEM efficiency is included in catalog listings. In preparation for the April 2020 NOPD, DOE collected updated catalog data and analyzed the distribution of SEMs in the manufacturer catalog data for CSCR and polyphase SEMs.42 DOE projected that these efficiency distributions would remain constant throughout 2028. In response to the April 2020 NOPD, DOE
did not receive any comments related to efficiency distributions and efficiency trends. Accordingly, DOE retained the same efficiency distributions used in the April 2020 NOPD in preparing this final determination. See chapter 8 of the TSD
for the estimated efficiency distributions.
9. Payback Period Analysis The PBP is the amount of time it takes the consumer to recover the additional installed cost of more-efficient equipment, compared to baseline equipment, through energy cost savings.
42 DOE relied on 140 models of CSCR small electric motors and 229 models of polyphase small electric motors identified in the manufacturer catalog data. More details on the distributions of currently available models for which motor catalog list efficiency is available in Chapter 8 of the TSD.

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PBPs are expressed in years. PBPs that exceed the life of the equipment mean that the increased total installed cost is not recovered in reduced operating expenses.
The inputs to the simple PBP
calculation for each efficiency level are the change in total installed cost of the equipment and the change in the firstyear annual operating expenditures relative to the baseline. The simple PBP
calculation uses the same inputs as the LCC analysis, except that discount rates are not needed.
V. Analytical Results and Conclusions The following section addresses the results from DOEs analyses with respect to the considered energy conservation standards for SEMs examined by DOE. It addresses the ELs examined by DOE and the projected impacts of each of these levels.
Additional details regarding DOEs analyses are contained in the NOPD
TSD supporting this document.
A. Energy Savings For each standards case considered, DOE estimated the per unit lifetime energy savings for SEMs purchased in the expected compliance year of any potential standards. The per unit energy savings were used in the calculation of the LCC and PBP values. DOE did not separately evaluate the significance of the potential energy conservation under the considered amended standards because it has determined that the potential standards would not be costeffective as defined in EPCA.43 42
U.S.C. 6316a; 42 U.S.C. 6295m1A;
42 U.S.C. 6295n2
B. Cost Effectiveness In general, higher-efficiency equipment affects consumers in two ways: 1 Purchase price increases and 2 annual operating cost decreases.
Inputs used for calculating the LCC and PBP include total installed costs i.e., equipment price plus installation costs, 43 The March 2010 Final Rule estimated the national energy savings achieved by the current energy conservation standards to be 2.2 quads of primary energy savings i.e., 0.29 quad at TSL 4b for polyphase SEMs and 1.91 quad at TSL 7 for single phase SEMs. The March 2010 Final Rule also estimated that the TSL resulting in the maximum national energy savings would provide a total of 2.7 quads of primary energy savings i.e., 0.37 quad at TSL 7 for polyphase SEMs and 2.33
quad at TSL 8 for single phase SEMs. 75 FR 10874, 10916 March 9, 2010 Although DOE did not separately evaluate the significance of the potential energy conservation under the considered amended standards, this previous analysis indicates an upper limit of 0.5 quad of primary energy savings 2.7
2.2 = 0.5 which corresponds to 0.2 quad site national energy savings and is below the 0.3 quad threshold for determining whether energy savings would be significant.

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