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36368 Federal Register/Vol. 67, No. 100/Thursday, May 23, 2002/Rules and Regulations

DEPARTMENT OF ENERGY Office ofEnergy Efficiency and b.Rebound Effect Renewable Energy's (EERE) Web site at: 5.Rebuttable Payback Period 

### Office of Energy Efficiencyand http//www.eren.doe.gov/buildings/ ShipmentsNational 

### Energy Savings Renewable Energy codes_standards/applbrf/

. 

### ets e at cdesnstralair~conditioaer hmlb2. Heat Rates central_airconditioner.html. 3. Fuel Switching 10 CFR Part 430 FOR FURTHER INFORMATION CONTACT D. Impact on Manufacturers [Docket Number EE-RM-98-4401 Michael Raymond, U.S. Department of 1. Cumulative Regulatory Burden Energy, Office ofEnergy Efficiency and 2. Financial Burdens Associated with New RIN 1904-AA7 7 Efficiency Standards 

### RIN~ 

## ~1904-AA77 Renewable Energy, Forrestal Building, 3.Small Manufacturers Energy Conservation Program for EE-41, 1000 Independence Avenue, 4. Manufacturer Cot Estimates 

### Consumer Products; Central Air SW., Washington, DC 20585-0121, (202) E Effect on Competition Conditioners and Heat Pumps Energy 586-0854, e-mail: F. Effect onUtility orPerformance Conservation Standards michael.raymond@ee.doe.gov,or 1.Dehumidification Michael Bowers, Esq., U.S. Department G.Electric System Reliability/Peak Power AGENCY: Office ofEnergy Efficiency and ofEnergy, Office ofGeneral Counsel, 1.PeakPower 

### Renewable Energy,Department of Forrestal Building, GC-72, 1000 2.

### Reliability Energy. Independence Avenue, SW., H. Other Issues ACTION: Final rule. Washington, DC 20585, (202) 586-9507, 2.TXV Requirement
SUMMARY: The Department ofEnergy e-mail: mike.bowers@hq.doe.gov. 3.State Exemption From DOE Standards SUMMARY: The Department of Energy SUPPLEMENTARY INFORMATIOl 4. Effective Date (DOE) today amends the existing energy 4.Effective Date conservation standards forcentral air Table of Contents. Employment Impacts conditioners and heat pumps by raising Table ofContents 6.Employment Impacts conditioners and heat pumps by raising I.Introduction 7. Space-Constrained Products the minimum energy efficiency levels I. Rulemaking History a. Through-the-Wall Products by 20 percent for most central air III. Authority ofDOE to Reconsider and b. Small Duct, High Velocity Systems conditioners and heat pumps, with Withdraw the January 22, 2001 Final 8. Basis for HSPF Level somewhat lower levels for certain space- Rule and Adopt a 12 SEER Standard for 9. Non-Regulatory Approaches
constrained products. DOE also today Central Air Conditioners 10. Energy Policy withdraws a final rule, published on A. DOE's Analysis ofEPCA's Anti- VII. Analytical Results and Conclusions January 22, 2001, that would have Backsliding Provision A. Overview ofAnalytical Results
established even higher standards. DOE B.Discussion ofPublic Comments on the 1.General has determined that the standards 

### in the Anti-Backsliding Provision 2.Through-the-Wall Products has determined that the standards in the 1.Environmental Advocates' Views 3.Small Duct, High Velocity Systems January 22 final rule, which never 2.ARI's Views B.Conclusions Regarding Conventional became effective, are not economically IV.Basis forDOE's Decision to Withdraw the Products justified under the Energy Policy and January 22, 2001 Final Rule C.Conclusions Regarding SpaceConservation Act (EPCA). Finally, DOE A. Legal Issues Constrained Products adopts provisions that clarify the point B.Policy Issues 1.Through-the-Wall Products in time at which DOE's discretion to V. Amended Energy Conservation Standards 2. Small Duct, High Velocity Systems
amend standards becomes limited under A Overview V P R 1.Central Air Conditioner and Heat Pump Review EPCA. Features A. Review Under the National DATES: The final rule amending 10 CFR 2. Consumer Benefits Environmental Policy Act part 430 published January 22, 2001 (66 3.National Benefits B.Review Under Executive Order 12866 FR 7170) is withdrawn as ofMay 23, B.Statutory Framework C.Review Under the Regulatory Flexibility
2002. The effective date ofthe C.Methodology Used in DOE Analyses Act amendments to the Code ofFederal D. General Discussion of DOE's D.Review Under the Paperwork Reduction Regulations in this rule is August 6, Consideration ofStatutory Criteria E.Review Under Executive Order 12988 2002.

. Technological Feasibility F. Review Under Executive Order 12630 2.Economic Justification Factors

. Review Under Executive Order 13132 ADDRESSES: You may read copies ofthe a. Economic Impact onManufacturers and H.Review Under the nfunded Mandates public comments, the Technical ConsumersRefo Act f 199 Support Document for Energy Efficiency b. Life-cycle Costs and Rebuttable Re Under the Treasury and General Standards for Consumer Products: Presumption Government Appropriations Act, 1999 Central Air Conditioners and Heat c.Energy Savings J.Review Under Executive Orde 13211 Pumps (TSD), the transcript ofthe d. Lessening ofUtility or Performance of K. ongressiona Notification public hearing, workshop transcripts in public hearing, in e. Impact ofLessening ofCompetition I. Introduction his proceeding, the petition forsubmitt f.Need ofthe Nation to Conserve Energy DOE today publishes three final reconsideration submitted by the Air- g. Other Factors 

### Conditioning and Refrigeration Institute, VI. Discussion ofComments rulemaking determinations with respect and other post-promulgation A. Impact on Consumers to amended central airconditioner and submissions at theDOE Freedom of 1.Low-Income Consumers heat pump energy conservation Information (FOI) Reading Room, U.S. 2.Electricity Prices standards under section 325 ofthe Department ofEnergy, Forrestal 3.Installation Costs Energy Policy and Conservation Act (42 Building, Room 1E-190, 1000 4.Manufactured Housing Owners U.S. Code (U.S.C.) Section 6295). First, 

### Indep dence venue SW.B. Life-Cycle Cost an PaybackPeriod for reasons described in detail in Independence Avenue, SW., 1.Product Lifetime Washington, DC 20585, (202-586-3142), 2. Warranty, Maintenance, and 

### Service Section IV ofthis Supplementary between thehours of 9 a.m. and 4 p.m., Costs Information, DOE hereby withdraws the Monday through Friday, except Federal 3.Markups January 22, 2001 final rule that would holidays. You may obtain copies ofthe 4. Energy Use have established 13 as the mandatory TSD and analysis spreadsheets from the a. Residential Energy Consumption Survey Seasonal Energy Efficiency Rating 

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36368 Federal Register/ Vol. 67, No. 100/Thursday, May 23, 2002/Rules and Regulations

DEPARTMENT OF ENERGY
Office of Energy Efficiency and Renewable Energy

10 CFR Part 430 [Docket Number EE-RM-98-440)

RIN 1904-AA77 Energy Conservation Program for Consumer Products; Central Air Conditioners and Heat Pumps Energy Conservation Standards

AGENCY: Office ofEnergy Efficiency and Renewable Energy. Department of Energy. ACTION: Final rule.

SUMMARY: The Department ofEnergy (DOE) today amends the existing energy conservation standards for central air conditioners and heat pumpsbyraising the minimum energy efficiency levels by 20 percent for most central air conditioners and heat pumps, with somewhat lowerlevels for certain spaceconstrained products. DOE also today withdraws a final rule, published on January 22, 2001, thatwould have established even higher standards. DOE has determined that the standards inthe January 22 final rule, which never became effective, are not economically justified underthe Energy Policy and Conservation Act (EpeA). Finally. DOE adopts provisionsthat clarify the point intime atwhich DOE's discretion to amend standardsbecomes limitedunder EPCA. DATES: The final rule amending 10 CFR part 430 publishedJanuary 22, 2001 (66 FR 7170) is withdrawn as ofMay 23, 2002. The effective date ofthe amendmentsto the Code ofFederal Regulations in this rule is August 6, 2002.
ADDRESSES: You may read copies ofthe public comments, the Technical SupportDocument for Energy Efficiency Standards for Consumer Products: Central Air Conditioners and Heat Pumps (TSD), the transcriptofthe public hearing, workshoptranscripts in this proceeding,thepetition for reconsideration submittedby theAirConditioning andRefrigeration Institute, and other post-promulgation submissions at the DOE Freedomof Information (FOI) Reading Room, U.S. Department ofEnergy, Forrestal Building, Room lE-190, 1000 Independence Avenue, SW.• Washington,DC 20585, (202-586-3142), between thehours of9 a.m. and4p.m., Monday through Friday, exceptFederal holidays. You may obtain copies ofthe TSD and analysis spreadsheets from the Office ofEnergyEfficiency and Renewable Energy's (EERE) Web site at: 

### http://www.eren.doe.govlbuildingsl codes_standardslapplbrfl centraCair_conditioner.html.
FOR FURTHER INFORMA1l0N CONTACT. Michael Raymond, U.S. Departmentof Energy, Office ofEnergy Efficiency and Renewable Energy, Forrestal Building, EE-41, 1000 IndependenceAvenue, SW., Washington, DC 20585-0121, (202) 586-0854, e-mail: 

### michael.raymond@ee.doe.gov, or Michael Bowers, Esq., U.S. Department ofEnergy. Office ofGeneral Counsel, Forrestal Building, GC-72, 1000 Independence Avenue, SW., Washington, DC 20585, (202) 586-9507, e-mail: 

### mike.bowers@hq.doe.gov. SUPPLEMENTARY INFORMATIOJlt Table ofContents
J. Introduction II. Rulemaldng History III. Authority ofDOE to Reconsider and Withdraw theJanuary 22, 2001 Final Rule and Adopt a 12 SEER Standard for Central Air Conditioners A. DOE's AnalYSis ofEPCA's AntiBacksliding Provision B. Discussion ofPublicComments on the

Anti-BackslidingProvision 1. Environmental Advocates' Views 2. ARI's Views IV. Basis for DOE's Decision to Withdraw the January 22, 2001 Final Rule A. Legal Issues B. Policy Issues V. Amended Energy Conservation Standards

A. Overview 1. Central Air Conditioner and Heat Pump

Features 2. Consumer Benefits 3. National Benefits B. Statutory Framework C. Methodology Used in DOE Analyses D. General Discussion ofDOE's

Consideration ofStatutoryCriteria 1. Technological Feasibility 2. Economic Justification Factors

a. Economic Impact onManufacturers and

Consumers b. Life-cycle Costs and Rebuttable

Presumption

c. Energy Savings d. Lessening ofUtility or Performance of

Products

e. Impact ofLessening ofCompetition f. Need oftheNationto Conserve Energy g. Other Factors VI. Discussion ofComments

A. Impact on Consumers 1. Low-Income Consumers 2. ElectriCity Prices 3. Installation Costs 4. Manufactured Housing Owners B. Life-Cycle Cost and PaybackPeriod 1. Product Lifetime 2. Warranty, Maintenance, and Service

Costs 3. Markups 4. Energy Use

a. Residential Energy Consumption Survey b. Rebound Effect 5. Rebuttable PaybackPeriod C. Shipments/National Energy Savings 1. Shipments Forecasts 2. Heat Rates 3. Fuel Switching D. Impact onManufacturers 1. CumulativeRegulatory Burden 2. Financial Burdens Associated with New

Efficiency Standards 3. Small Manufacturers 4. ManufacturerCost Estimates E. Effect on Competition F. Effect on Utility orPerformance 1. Dehumidification G. Electric System Reliability/Peak. Power 1. PeakPower 2. Reliability H. Other Issues 1. Minimum EER Requirement 2. TXV Requirement 3. State Exemption From DOE Standards 4. Effective Date 5. Environmental Impacts 6. Employment Impacts 7. Space-Constrained Products

a. Through-the-Wall Products b. Small Duct, High VelOcity Systems 8. Basis for HSPF Level 9. Non-Regulatory Approaches 10. Energy Policy VII. Analytical Results and Conclusions

A. Overview ofAnalytical Results 1. General 2. Through-the-Wall Products 3. Small Duct, High Velocity Systems B. Conclusions Regarding Conventional

Products C. Conclusions Regarding SpaceConstrained Products 1. Through-the-Wall Products 2. Small Duct, High Velocity Systems VIII. Procedural Issues and Regulatory Review A. Review Under the National

Environmental Policy Act B. Review Under Executive Order 12866 C. Review Under the Regulatory Flexibility

Act D. Review Underthe Paperwork Reduction

Act E. Review Under Executive Order 12988 F. Review Under Executive Order 12630 G. Review UnderExecutive Order 13132 H. Review Under the Unfunded Mandates

Reform Act of 1995 I. Review Under the Treasury and General

Government Appropriations Act, 1999 J. Review Under Executive Order 13211 K. Congressional Notification I. Introduction

DOE today publishes three final rulemaking determinationswith respect to amended central airconditionerand heat pumpenergy conservation standards under section 325 ofthe Energy Policy and ConservationAct (42 U.S. Code (U.S.C.) Section 6295). First, for reasons described in detail in SectionIV ofthis Supplementary Information, DOE hereby withdraws the January 22, 2001 final rule that would have established 13 as the mandatory Seasonal Energy Efficiency Rating

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(SEER)' for most central air Proposed Rulemaking (ANOPR) 2000, to hear oral views, data and conditioners and central air announcing DOE's intention to revise arguments on the proposed rule. conditioning heat pumps (heat pumps). the existing central air conditioner and On January 22, 2001, at the close of DOE withdraws the final rule because it: heat pump efficiency standard pursuant the Clinton Administration, DOE (1) Was promulgated without consulting to section 325(d) ofEPCA, as amended published a final rule that would have with the Attorney General on potential by NAECA. 58 FR 47326. The fiscal year required a SEER of 13 for all classes of anti-competitive effects, (2) contained a (FY) 1996 appropriations legislation for central air conditioners, except for material defect in the statement ofbasis DOE imposed a moratorium on "niche" products which were omitted and purpose required by the proposed and final energy conservation from the rule, and a corresponding Administrative Procedure Act (APA), (3) standards. Public Law 104-134. During HSPF of7.7 for central air conditioning contained an effective date in conflict the moratorium, DOE responded to heat pumps (Final Rule, "Energy with the Congressional Review Act's lie- congressional concern about howthe Conservation Program for Consumer before-the-Congress requirement for appliance standards program was Products; Central Air Conditioners and major rules, and (4) was based on an working by consulting with a broad Heat Pump Energy Conservation

assessment ofbenefits and burdens that spectrum ofinterested persons on Standards," 61 FR 7170). resulted in an erroneous conclusion that possible improvements. As a result, on Pursuant to President Bush's

a 13 SEER standard for both central air July 15,1996, DOE published a new Regulatory Review Plan,3 DOE condi: ioners and central air policy on how it would conduct conducted an internal review of the condit. rning heat pumps would be appliance standards rulemaking (61 FR final, not-yet-effective rules issued

cr-,on, ically justified under title III, 36974). The new policy, "Procedures for under section 325 ofEPCA that DOE

vmrt B o' the Energy Policy and Consideration ofNew or Revised Energy published at the end ofthe Clinton i :onservetion Act (EPCA) (42 U.S.C. S f Administration, including final rules 1e t (EPCA) (42 U.S.C. Conservation Standards for Consumer concerning energy conservation ( 291 et s q.). Second, DOE adopts Products," is commonly referred to as concerning energy conservation regulatcry provisions that implement the Process Improvement Rule and is heaters, and central air conditionhewash ers w aternd secdion '25(o)(1) ofEPCA, including codified at 10 CFR part 430, subpart C, central airconditioninhe a nd defi.itio.u ofthe statutory terms Appendix A. Under this new policy, nentral air conditioning h eat pumps. "mam:imun: allowable energy use" and DOE presented for comment an o n teinin wththe a sandard ct el is "minimum required energy efficiency," analytical framework forthe central air economically justified under section and t:ereby pinpoints the point in time conditioner and heat pump standards 325 (42 U.S.C. 6295(o)(2)(B)), DOE
at which DCE's discretion to alter an rulemaking during a workshop on June examined each ofthese three rules to amended standard becomes limited. The 30 1998. The analytical framework determine, among other things, whether basis for this determination is discussed described the different analyses that the rulemaking rcord wascomplete in Section III ofthis Supplementary DOE would conduct, the methods for and whether the affirmative Information. Third, DOE finalizes 12 conducting them, the use ofnew determination ofeconomic justification
SEER and 7.4 Heating System spreadsheets, and the relationship ofthe was based on adequate findings with Performance Factor (HSPF) 2 as the various analyses. On November 24, regard to the statutorily required amended energy conservation standard 1999, DOE published a Supplemental considerations that make up the test of for most central air conditioners and ANOPR for central air conditioners and conomic justification. central air conditioning heat pumps and heat pumps and invited additional While DOE examined the three adopts lower standards for certain comment on issues raised following appliance energy conservation space-constrained products. The basis publication ofthe original ANOPR. 64 standards rulemakings under the for these determiaions is discusse in FR 66306. President's Regulatory Review Plan, Sections V through VII ofthis DOE published a notice ofproposed DOE received petitions for Supplementary Information rulemaking on October 5, 2000 (October reconsideration for each final rule. In H. Rulemaking History 5, 2000 NOPR). 65 FR 59590. The addition, DOE received notice that the

The existing standards for residential energy efficiency standards that DOE Gas Appliance Manufacturers central air conditioners and heat pumps proposed for residential central air Association (with regard to the water

were prescribed by the National conditioners and heat pumps were as heater rule) and the Air-Conditioning Appliance Energy Conservation Act of follows: and Refrigeration Institute (ARI) and 1987 (NAECA) (Pub. L. 100-12) and -Split-system and single-package air certain manufacturers (with regard to have been in effect since 1992. The conditioners-12 SEER the central air conditioner rule) had

current central air conditioner and heat -Split-system and single package heat filed petitions for review in the United
pump efficiency standards are as pumps-13 SEER7.7HSPF States Court of Appeals for the Fourth follows: Circuit. -Through-the-wall air conditioners and Ultimately, DOE decided that neither -Split system air conditioners andheat heat pumps-11 SEER/7.1 HSPF. the clothes washer rule nor the water

pumps--lo SEER/6.8 HSPF -Single package air conditioners and In addition to the increase proposed heater rule warranted further

heat pumps-9.7 SEER/6.6 HSPF in SEER and HSPF, DOE requested rulemaking action and denied the On September 8, 1993, DOE comments on a proposal to adopt a related petitions for reconsideration. See ublished an Advance Notice of standard for steady-state cooling 66 FR 19714 (April 17, 2001). With published an Advance efficiency, denominated EER (or Energy regard to central air conditioners and

1The Seasonal Energy Efficiency Ratio or SEER Efficiency Ratio). The proposal ofan central air conditioning heat pumps,
is DOE's measure of energy efficiency for the EER was designed to ensure more DOE concluded that ARI had raised

seasonal cooling performance of central air efficient operation at high outdoor
conditioners and central air conditioning heat temperatures, during periods when 3This Plan was set forth in a memorandum from pumps. "electricity u by Assistant to the President and Chiefof Staff Andrew
pThe Heating Seasonal Performance Factor is electricity by air conditioners is at January22 ad p ed in
DOE's measure ofenergy efficiency for the seasonal its peak. A public hearing was held in the Federal Register on January 24, 2001 (66 FR heating performance ofheat pumps. Washington, D.C. on November 16, 7702). 

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(SEER) 1 for most central air conditioners and central air conditioningheat pumps (heat pumps). DOE withdraws the final rule because it: (1) Was promulgated without consulting with the Attorney General on potential anti-competitive effects. (2) contained a material defect inthe statement ofbasis and purposerequired by the Administrative ProcedureAct (APA). (3) contained an effective date in conflict with the Congressional Review Act's Iiebefore-the-Congress requirement for major rules, and (4) was based on an assessment ofbenefits and burdens that resulted in an erroneous conclusion that

a 13 SEER standard for both central air condi:ioners and central air condit 1ning heat pumps wouldbe lCC'"OII.ically justified under title 

### m, lurt B 0'the Energy Policy and

, :onserv,-,tion Act (EPCA) (42 U.S.C. ( 291 

### et 5 'q.). Second, DOE adopts rllgulatcrr provisions that implement sf'clion**~\2':i(0)(1)** ofEPCA, including dP,£;.litio.ll ofthe statutory terms "ma;:imun·. allowable energy use" and "min.;mum required energy efficiency," and tl:ereby pinpointsthe point intime at whkh DeE's discretion to alter an amende.:!**~~andard** becomes limited. The basis for this determination is discussed in Section III ofthis Supplementary Information. Third, DOE finalizes 12 SEER and 7.4 Heating System Performance Factor (HSPF) 2 as the amended energy conservation standard for most central air conditioners and central air conditioningheat pumps and adopts lower standards for certain space-constrainedproducts. Thebasis for these determinations is discussed in Sections Vthrough VII ofthis Supplementary Information


## n. RulemakingHistory

The existing standards for residential central air conditioners and heat pumps
were prescribed by the National Appliance Energy Conservation Act of 1987 (NAECA) (Pub. L. 100--12) and have been in effect since 1992. The current central air conditioner and heat pump efficiency standards are as follows: -Split system air conditioners andheat

pumps-10 SEER/6.8 HSPF -Single package air conditioners and

heat pumps-9.7 SEER/6.6 HSPF On September 8, 1993, DOE published an Advance Notice of

1The Seasonal Energy Efficiency Ratio or SEER is DOE's measure ofenergy efficiency for the seasonal cooling performance ofcentral air conditioners and central air conditioning heat pumps.

2 The Heating Seasonal Performance Factor is DOE's measure of energy efficiency for the seasonal heating performance ofheat pumps. Proposed Rulemaking (ANOPR) announcingDOE's intention to revise the existing central air conditionerand heat pump efficiency standard pursuant to section 325(d) ofEPCA, as amended by NAECA. 58 FR 47326. The fiscal year (FY) 1996 appropriations legislation for DOE imposed a moratorium on proposed and final energy conservation standards. Public Law 104-134. During the moratorium, DOE responded to congressional concern about how the appliance standards program was workingby consulting with abroad spectrum ofinterestedpersons on possible improvements. As a result, on July 15, 1996, DOE published a new policy on how it would conduct appliance standards rulemaking (61 FR 36974). The new policy, "Procedures for Consideration ofNew or Revised Energy Conservation Standards for Consumer Products," is commonly referred to as the Process Improvement Rule and is codified at 10 CFR part 430, subpart C, Appendix A. Under this new policy, DOE presented for comment an analytical framework for the central air conditioner and heat pump standards rulemaking during a workshop on June 30, 1998. The analytical framework described the different analyses that DOE would conduct, the methods for conductingthem, the use ofnew spreadsheets, and the relationship ofthe various analyses. On November 24, 1999, DOE published a Supplemental ANOPR for central air conditioners and heat pumps and invited additional comment on issues raised following publication ofthe original ANOPR. 64 FR 66306.

DOE published a notice ofproposed rulemaking on October 5, 2000 (October 5,2000NOPR). 65 FR 59590. The energy efficiency standards that DOE proposed for residential central air conditioners and heat pumps were as follows: -Split-system and single-package air

conditioners-12 SEER -Split-system and single package heat

pumps-13 SEER/7.7 HSPF -Through-the-wall air conditioners and

heat pumps-ll SEERl7.1 HSPF.
In addition to the increase proposed in SEER and HSPF, DOE requested comments on a proposal to adopt a standard for steady-state cooling effiCiency, denominated EER (or Energy Efficiency Ratio). The proposal ofan EER was designed to ensure more efficient operation at high outdoor temperatures, during periods when electricity use by air conditioners is at its peak. A public hearing was held in Washington, D.C. on November 16, 2000, to hear oral views, data and arguments on the proposed rule.

OnJanuary 22, 2001, at the close of the Clinton Administration, DOE published a final rule that would have required a SEER of 13 for all classes of central air conditioners, except for "niche" products which were omitted from the rule, and a corresponding HSPF of7.7 for central air conditioning heat pumps (Final Rule, "Energy Conservation Program for Consumer Products; Central Air Conditioners and Heat Pump Energy Conservation Standards," 61 FR 7170).

Pursuant to President Bush's Regulatory Review Plan,3 DOE conducted an internal review ofthe final. not-yet-effective rules issued under section 325 ofEPCA that DOE published at the end ofthe Clinton Administration, including final rules concerning energy conservation standards for clothes washers, water heaters, and central airconditioners and central air conditioningheat pumps. Consistent with the EPCA criteria for determining whether a standard level is economically justified under section 325 (42 U.S.C. 6295(0)(2)(B)), DOE examined each ofthese three rules to determine, among other things, whether the rulemaking record was complete and whether the affirmative determination ofeconomicjustification

was based on adequate findings with regard to the statutorily required considerations that make up the test of economicjustification.

While DOE examined the three appliance energy conservation standards rulemakings under the President's Regulatory Review Plan, DOE received petitions for reconsideration for each final rule. In addition, DOE received notice that the Gas Appliance Manufacturers Association (with regard to the water heater rule) and the Air-Conditioning and Refrigeration institute (ARl) and certain manufacturers (with regard to ilie central air conditionerrule) had filed petitions for review in the United States Court ofAppeals for the Fourth Circuit.

Ultimately, DOE decided that neither the clothes washerrule nor the water heaterrule warranted further rulemaking action and denied the related petitions for reconsideration. See 66 FR 19714 (April 17, 2001). With regard to central air conditioners and central air conditioning heat pumps, DOE concludedthat ARI had raised

J This Plan was set forth in a memorandum from Assistant to the President and Chiefof StaffAndrew H. Card. dated January 20. 2001. and published in the Federal Register on January 24. 2001 (66 FR 7702).

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substantial questions as to the legal wall product classes, DOE proposed SEER standards is the text ofthe statute. sufficiency ofand basis for the January somewhat lower standards. DOE Section 325(o)(1) ofEPCA provides as 22, 2001 final rule and that the interests conducted a public hearing in follows: ofjustice therefore dictated that DOE Washington, D.C. on October 2, 2001, to The Secretary may not prescribe any further postpone the rule's effective date hear oral views, data and arguments on amended standard which increases the in light ofthe pendency ofARI's the proposed rule. maximum allowable energy use, or, in the petition forjudicial review in the Fourth II Authority ofDOE T Reconsider case of showerheads, faucets, water closets, Circuit and its related petition for and Withdraw the January22 2001 or urinals, water use, or decreases the reconsideration. 66 FR 20191 (April 20, 

### n R and 

### t minimum required energy efficiency, ofa 2001). At that time DOE indicated that St andard for Ctral A covered product. it would likely resolve these issues 42 U.S.C. 6295(o)(1). through supplemental rulemaking that The issue of DOE's authority to The critical term in section 325(o)), would be forthcoming shortly. withdraw the January 22 final rule and it ree t rulemaking on central

On June 19, 2001, the State ofNew propose a 12 SEER standard was first air conditioners and heat pumps, is York, several other states, the Natural raised in ARI's March 23, 2001 petition "minimum required energy efficiency." Resources Defense Council, Consumer for reconsideration (ARI, No. 138) and E des n deine this term. Federation of America, and the Public i a responding letter submitted to However, in context, it is clear that a Utility Law Projt ct sue i DOE in Federal Secretary Abraham by various SEER and an HSPF are benchmarks of court challengin its acions delaying environmental organizations on April 6, S and n red energy icinc the effective date of the January 22 final 2001 (Alliance to Save Energy (ASE), etfor central a ir conditionergy efficiency
rule. The cases w ^ con~olidated, with.;S, 1 8^^ 1 ^^^^^^ th at pumps. See 42 U.S.C. 6295(d)(l) and rule. The cases w h;e con-olidated, with al., ASE, No. 183). ARI contended that the states ofCalif innia, Connecticut, section 325(o)(1) ofEPCA, which pumps. See42 U.S.C. 6295(d)() and Vermont, Maine, 4ew Jer- By and prohibits DOE from decreasing the (d)2). The key question, however, is
Nevada joining the iawsuii (State of maximum allowable energy use or whicmh SR aned HSPFe efficiency " New York et al. v. A.rahin',01 Civ. minimum required energy efficiency of "minimum required energy efficiency 5499 (LTS) and01 C. covered products, did not apply to central air conditioners and heat 5499 (LTS) and 01 Citiiv. reconsideration ofthe January 22 final pumps that may not be decreased by an 5500(LTS)(SDNY); 4a peti'.ik n for amended st an d ar d review was also filed with tl.e Court of rule because DOE had suspended the amend stanHSPF Appeals for the Second Circvit (Docket effective date of the rule (ARI, No.138 Had the new SEER and HSPF set out No. 01-4103)at

p.3, n.2). This provision has been in the January 22, 2001, final rule been

petition and published a three part anti-backsliding provision." The set forth) been made applicable only to petition and published a three part appliances manufactured on or after supplemental proposal with regard to 3,2006, we think this would supplemental proposal with regard to environmental advocates took a contrary appliances manufactured on or after

energy conservation standards for position, arguing that the anti- January 23,2006, we think this would central air conditioners and central air backsliding provision did apply and, be a close question. A reasonable conditioning heat pumps. 66 FR 38822. thus, that DOE was precluded from argument could be made that the new cdFirst, DE proposed regulatory 32 reconsidering the rule and proposing a SEER and HSPF became "required" First, DOE proposed regulatory less stringent standard (ASE et a]., No. immediately as to such appliances provisions to clarify that section 183 at p. 5). In the April 20, 2001, notice provided they were manufactured on or 325(o)(rulemaking authority to prqualifiescribe postponing the effective date ofthe after January 23, 2006. A reasonable rulemaking authority to prescribe January 22 final rule, DOE stated its argument could also be made that the amended energy conservation effintention to issue a further notice of new SEER and HSPF would not be standards, applies as ofan effective date proposed rulemaking that would "required" until January 23, 2006, when for modifying the Code ofFederal proposed rulemaking that would "required" until January 23,2006, when for modifying the notice propose a 12 SEER/7.4 HSPF standard appliances manufactured after that date Regulations (CFR) set forth in the noticefor central air conditioners and heat would have had to comply with them. offinal rulemaking and establishedstated that it would invite We address this question, and other
consReview Act (5U.S.C. 801-804). Seconal public comment on its explanation of considerations bearing on the answer to Review Act (5U.S.C. 801-804). Second, the statutory authority tomake such a it, at greater length below. in order to correct arguable legal errors proposal upon reconsideration of the In fact, however, the January 22, 2001 and policy shortcomings, DOE proposed proposal upon reconsideration ofthe In fact, however, the January 22,2001 a nd policy shortcomings, DOE proposed January 22 final rule (66 FR 20101). final rule expressly stated that the
to withdraw e a n u a r y e-ase a l s t of Subsequently in the notice of amendments it set out to existing Third, based on are-assessment of supplemental proposed rulemaking standards in the Code of Federal factual inford, DOE proposed to published on July 252001 (July 25 Regulations would not take effect until determine that elevation ofE prop the currently SNOPR), DOE included a detailed 30 days after publication in the Federal enforceable central air conditioner and c explanation of its interpretation of Register. Well before that date arrived, enforceable central air conditioning heat pump section 325(o)(1) of EPCA. We repeat on February 2, 2001, DOE postponed entral air conservation standards by 20 much ofthe July 25 SNOPR explanation that effective date for an additional 60
enercent is the maximum increase that is here as a preface to a discussion of days. Before that 60-day period had percent is the maximum increase that ispublic comments received on this issue. passed, on April 18, 2001, DOE further economically justified. For product (Repeating DOE's analysis of section postponed the amendments' effective classes other than through-the-wall 325(o)(1) here also will assist readers date pending the outcome ofpetitions products, DOE proposed a SEER of 12 who otherwise would have to look back by ARI for reconsideration and for with a corresponding HSPF of7.4 which at a copy ofthe July 25 SNOPR) judicial review. would apply to products manufactured As a result, the new SEER and HSPF, in 2006. With respect to through-the- A. DOE's Analysis of EPCA'sAnti- though set out in a final rule, never in BackslidingProvision any sense achieved the status ofbeing

en April 25d 2002a thedistrict cout dismissed 

### The starting point for the analysis of the "required" "minimum energy

court lacked subject matter jurisdiction to consider DOE's authority to reconsider the efficiency" benchmarks. There has
the matters raised by the plaintiffs. January 22 final rule and propose 12 never been a single moment under any 

### 36370 

### Federal Register/Vol.**subst~ntial** questions as to the legal sufficiency ofand basis for the January 22, 2001 final rule and that the interests ofjustice therefore dictated that DOE further postpone the rule's effective date in light ofthe pendency ofARI's petition for judicial review in the Fourth Circuit and its related petition for reconsideration. 66 FR 20191 (April 20, 2001). At that timeDOE indicated that it would likely resolve these issues through supplemental rulemakingthat wouldbe forthcoming shortly.

On June 19, 2001, the State ofNew York, several other states, the Natural Resources Defense Council, Consumer Federation ofAI'1erica, and the Public Utility Law Praj( ct sue l DOE in Federal court challengin**~** its aCl;ons delaying the effective date of**~e** rilluary 22 final rule. The cases '"**~~'e** cOllt'olidated, with the states ofCalif n'nia, ::::onnecticut Vermont, Maine,

### .J,~w**Jl'.r~** 3y and ' Nevadajoiningthr:l .awslli: (State of New York eta1. v. A,1rohtlll1, 01 Civ. 5499 (LTS) and 01 elv. 5500(LTS)(SDNY); 4 a peti:i,n for review was also filed with tl.e Court of Appeals for the Secont 1Circl..'.it (Docket No. 01-4103).

OnJuly 25, 2001, DOE !S.dnted ARI's petition and published a three part supplemental proposal with regard to energy conservation standards for central air conditioners and central air conditioning heat pumps. 66 FR 38822. First, DOE proposed regulatory provisions to clarify that section 325(0)(1). which qualifies DOE's rulemaking authority to prescribe amended energy conservation standards, applies as ofan effective date for modifying the Code ofFederal Regulations (CFR) set forth in the notice offinal rulemaking and established consistent with the Congressional Review Act (5 U.S.C. 801-804). Second, in order to correct arguable legal errors and policy shortcomings, DOE proposed to Withdraw the January 22 final rule. Third, based on a re-assessment of factual information and analyses already in the record, DOE proposed to determine that elevation ofthe currentIv enforceable central air cocditioner and' central air conditioningheat pump energy conservation standards by 20 percent is the maximum increase that is economicallyjustified. For product classes other than through-the-wall products, DOE proposed a SEER of 12 with a corresponding HSPF of7.4 which would apply to products manufactured in 2006. With respectto through-the4 On April 25. 2002. the district court dismissed the consolidated actions on the ground that the court lacked subject matterjurisdiction to consider the matters raised by the plaintiffs. 

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wall product classes, DOE proposed somewhat lower standards. DOE conducted a public hearing in Washington, D.C. on October 2,2001,to hear oral views, data and arguments on the proposed rule.
III. Authority ofDOE To Reconsider**~d** Withdrawthe January 22, 2001 Fmal Rule andAdopt a 12 SEER Standard for Central AirConditioners

The issue ofDOE's authority to withdraw the January 22 final rule and propose a 12 SEER standard was first raised in ARI's March 23, 2001 petition for reconsideration (ARI, No. 138) and in a responding letter submitted to Secretary Abraham by various environmental organizations on April 6, 2001 (Alliance to Save Energy (ASE), et a1., ASE, No. 183). ARI contended that section 325(0)(1) ofEPCA, which prohibits DOE from decreasing the maximum allowable energy use or minimum required energy efficiency of covered products, did not apply to reconsideration ofthe January 22 final rule because DOE had suspended the effective date ofthe rule (AR!, No. 138 at p. 3, n. 2). This provision has been referred to in the rulemaking as EPCA's "anti-backsliding provision." The**env!r.onmenta~** advocates took a contrary pOSItion, argumg that the antibacksliding provision did apply and, thus, that DOE was precluded from reconsideringthe rule and proposing a less stringent standard (ASE et a1., No. 183 at p. 5). In the April 20, 2001, notice postponingthe effective date ofthe January 22 final rule, DOE stated its intention to issue a further notice of proposed rulemaking that would propose a 12 SEER/7.4 HSPF standard for central air conditioners and heat pumps, and stated that it would invite public comment on its explanation of the statutory authority to make such a proposal upon reconsideration ofthe January 22 final rule (66 FR 20101). Subsequently in the notice of supplemental proposed rulemaking published onJuly 25, 2001 Guly 25 SNOPR), DOE included a detailed explanation ofits interpretation of section 325(0)(1) ofEPCA. We repeat much ofthe July 25 SNOPR explanation here as a preface to a discussion of public comments received on this issue. (Repeating DOE's analysis ofsection 325(0)(1) here also will assistreaders who otherwise would have to lookback at a copy ofthe July 25 SNOPR.)
A. DOE'sAnalysisof EPCA 's AntiBackslidingProvision

The starting pointfor the analysis of DOE's authority to reconsider the January 22 final rule and propose 12 SEER standards is the text ofthe statute. Section 325(0)(1) ofEPCA provides as follows:

The Secretary may not prescribe any amended standard which increases the maximum allowable energy use, or, in the

case ofshowerheads, faucets. water closets,

or urinals. water use, or decreases the minimum required energy efficiency, ofa covered product.

. 42 U.S.C. 6295(0)(1).

The critical term in section 325(0)(1),

as it relates to the rulemaking on central air conditioners and heat pumps, is "minimum required energy efficiency." EPCA does not define this term. However, in context, it is clear that a SEER and an HSPF are benchmarks of "minimum required energy efficiency" for central air conditioners and heat pumps. See 42 U.S.C. 6295(d)(1) and (d)(2). The key question. however, is which SEER and HSPF represent the "minimum required energy efficiency" for central air conditioners and heat pumps that may not be decreased by an amended standard.

Had the new SEER and HSPF set out in the January 22. 2001, final rule been allowed to take effect, but (as the rule set forth) been made applicable only to appliances manufactured on or**afte~** January 23, 2006, we think this would be a close question. A reasonable argument could be made that the new SEER and HSPF became "required" immediately as to such appliances provided they were manufactured on or after January 23, 2006. A reasonable argument could also be made that the

new SEER and HSPF would not be "required" until January 23, 2006, when appliances manufactured after that date would have had to comply with them. We address this question, and other considerations bearing on the answer to it, at greater length below.

. In fact, however, the January 22, 2001 fmal rule expressly stated that the amendments it set out to existing standards in the Code ofFederal Regulations would not take effect until 30 days after publication in the Federal Register. Well before that date arrived,

on February 2, 2001, DOE postponed that effective date for an additional 60 days. Before that 60-day period had passed, on April 18, 2001, DOE further postponed the amendments' effective date pending the outcome ofpetitions by AR! for reconsideration and for judicial review.

As a result, the new SEER and HSPF. though set out in a final rule, never in any sense achieved the status ofbeing the "required" "minimum energy efficiency" benchmarks. There has

never been a single moment under any

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understanding of the word "required" at in section 325(o)(1), the question permissible interpretation of section which any central air conditioner or remains whether DOE should construe 325(o)(1), DOE believes that the view set heat pump, including one manufactured the term "minimum required energy out in our proposed rule is the better after January 23, 2006, could even efficiency" to mean (A) energy one. arguably have been legally required to efficiency standards that are not yet The latter view-that a standard is be manufactured in conformity with enforceable against the manufacturers, only covered by section 325(o)(1) after them. Hence, whatever might have been but that have been prescribed in a final manufacturers are required to comply the case had the January 22 final rule rule amending prior standards, which with it-does at first blush appear to be been allowed to take effect, we do not amendments have been made to the CFR the most natural reading ofthe phrase.

see how the publication ofa final rule pursuant to an effective date that has This view, however, is in tension with that would have changed those passed; or (B)energy efficiency the rest of the sentence, which, as standards, but was prevented by later standards that are currently enforceable explained above, suggests that the
agency action from doing so, could against the manufacturers ifthey relevant point ofcomparison is the possibly establish "minimum required manufacture and sell a non-compliant standard being amended, regardless of
energy efficiency" benchmarks. product. whether manufacturers actually have to

This interpretation of "minimum DOE believes that alternative (A) is comply with it. Moreover, ifadopted, required energy efficiency" is reinforced the preferable construction of the term, this view would allow the Secretary to by the rest ofthe sentence in sect on but only ifthe effective date selected for change the energy efficiency standards 325(o)(1) ofwhich the phrase is E part. the final rule is consistent with other right up to the minute before the That sentence establishes a limitk tion applicable laws and regulations and compliance date. This seems to slight

on the "amended standards" the allows the Secretary an opportunity important reliance interests given Secretary may prescribe. That wo. ding promptly to correct legal and policy significant weight in other respects by strongly suggests that the "minim, in errors that may have been contained in EPCA's provisions on central air required energy efficiency" levels oelow 'he final rule. Ifthat precondition is conditioner standards. For example. which the Secretary may not go art the satisfied, DOE believes alternative (A) section 325(d) provides that with

ones established by the standards Leing Xill better advance the relevant respect to central air conditioners, any amended. Because ofthe various actions s, itutory and policy considerations amended standard contained in a final postponing the effective date of the un.derlying section 325(o)(1): To rule published on January 1, 1994, can amendments to the standards it pr.mote greater energy efficiency while apply only to products manufactured on proposed, the January 22, 2001 rule providing greater certainty to or after January 1, 1999. It similarly

never actually effectuated any manufacturers who must plan and make provides that any amended standard amendment to the prior standards. the expenditures necessary to comply contained in a final rule published Therefore, the standards that DOE with an amended energy conservation between January 1, 1994, and January 1, proposed to amend are not the ones that standard-which is often a multi-year 2001, can apply only to products would have been in place had the endeavor with substantial costs. We manufactured on or after January 1, amendments set out in the January 22 note that the relative certainty the 2006. The purpose of these delays is rule actually been made. Rather, they interpretation set out in alternative (A) plainly to give manufacturers a

are the standards prescribed by NAECA produces for manufacturers, which is a significant amount of time to develop (SEER of 10.0 and HSPF of6.8 for split key comparative advantage ofthis and manufacture new products after a systems manufactured after January 1, interpretation over the competing one, new standard is adopted but before it 1992, SEER of9.7 and HSPF of6.6 for is intimately tied to a proper effective becomes enforceable. These delays also single package systems manufactured date choice that facilitates prompt error suggest that a change of standard on the after January 1, 1993), unamended until correction, thereby potentially avoiding eve ofthe manufacture of a product

now by anything, including the never- litigation that would seriously would be quite disruptive-which made-effective amendments set out in undermine the certainty soughtto be stands to reason given the lead-time the January 22, 2001 rule. achieved. necessary to be in a position to

Notwithstanding public comments DOE believes that this resolution of manufacture a compliant product. Thus, (discussed below), DOE continues to the ambiguities in the statute is to allow a standard to be blocked at the believe the foregoing analysis consistent with the statute's text, last minute before the compliance establishes that EPCA is unambiguous structure, legislative history, andthe deadline would potentially leave a

on the question ofwhether standards fundamental policy choices it makes. rather large residual uncertainty that are published in the Federal We believe that on balance this difficult to reconcile with the central Register, but not yet effective, represent approach better accomplishes the purpose ofestablishing a climate of the "minimum required energy statute's objectives than either adopting regulatory stability served by these efficiency" benchmarks for central air alternative (A) without the qualification closely related portions of EPCA. conditioners and heat pumps for set out above, thereby establishing a set The legislative history of section
purposes of section 325(o)(1). We think of procedures that could have the effect 325(o)(1), although sparse, also suggests it is clear from the statutory text that ofpreventing the Secretary, within a that this interpretation may not be the such standards do not represent the short period after publication of a final one best suited to accomplish the benchmarks for "minimum required rule that would modify such standards, statute's objectives. In discussing this
energy efficiency." We also believe that from correcting defects in them that provision in the House bill, the House

even ifthe statute were found to be come to his attention; or adopting report states: ambiguous, for the reasons set out in the alternative (B), thereby reading the discussion that follows, that would not phrase "minimum required energy DOE may not prescribe an amended standard that increases the maximum be the interpretation that we should efficiency" to encompass only energy allowable energy use or decreases the select as a matter ofpolicy. efficiency standards as ofthe date upon minimum required energy efficiency of a

Ifpublished but not yet effective which manufacturers have to comply covered product. Thepurpose ofthis standards are not the benchmarks for with those standards. Although at least requirement is to prevent the Secretary from "minimum required energy efficiency" the latter approach may well be a weakening any energy conservation standard 

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understanding ofthe word "required" at which any central air conditioner or heat pump, including one manufactured after January 23, 2006, could even arguably havebeen legally required to be manufactured in conformity with them. Hence, whatever might have been the case had the January 22 final rule been allowed to take effect, we do not
see how the publication ofa final rule that would have changed those standards, but was prevented by later agency action from doing so, could possibly establish "minimum required energy efficiency" benchmarks.

This interpretation of"minimum required energy efficiency" is reinforced by the rest ofthe sentence in sect on 325(0)(1) ofwhich the phrase is [ part. That sentence establishes a limite tion

onthe "amended standards" the Secretary may prescribe. That woo :ling strongly suggests that the "minim, In required energy efficiency" levels .)plow which the Secretary may not go art. t'le

ones established 

### bythe standards Lcing amended. Because ofthevarious actic.ns postponing the effective date ofthe amendments to the standards it proposed, the January 22, 2001 rule

never actually effectuated any amendment to the prior standards. Therefore, the standards that DOE proposed to amend are notthe onesthat would have been in place had the amendments set out in the January 22 rule actually been made. Rather. they

are the standards prescribed by NAECA (SEER of 10.0 and HSPF of6.8 for split systems manufactured after January 1, 1992, SEER of9.7 and HSPF of6.6 for single package systems manufactured after January 1, 1993), unamended until

now by anything, includingthe nevermade-effective amendments set out in the January 22. 2001 rule.

Notwithstandingpublic comments (discussed below), DOE continues to believe the foregoing analysis establishes that EPCA is unambiguous

on the question ofwhether standards that are published in the Federal Register, but not yet effective. represent the "minimumrequired energy efficiency" benchmarks for central air conditioners and heat pumps for purposes ofsection 325(0)(1). We think it is clear from the statutory text that such standards do not representthe benchmarks for "minimumrequired energy efSciency." We also believe that

even ifthe statute were found to be ambiguous, for the reasons set outin the discussion that follows, that would not bethe interpretation that we should select as a matter ofpolicy.

Ifpublishedbut notyet effective standards are not the benchmarks for "minimumrequired energy efficiency" in section 325(0)(1), the question remains whether DOE should construe the term "minimumrequired energy efficiency" to mean (A) energy efficiency standards that are not yet enforceable against the manufacturers, but that have been prescribed in a final rule amending prior standards, which amendments have been made to the CFR pursuantto an effective date that has passed; or (B) energy effiCiency standards that are currently enforceable against the manufacturers ifthey manufacture and sell a non-compliant product.

DOE believes that alternative (A) is the preferable construction ofthe term, but only ifthe effective date selected for the final rule is consistent with other applicable laws and regulations and allows the Secretary an opportunity promptly to correct legal and policy

errors that may have been contained in '.he final rule. Ifthat precondition is**~atisfied,** DOE believes alternative (A)

, ·ill better advancethe relevant

s. ltUtOry and policy considerations uLderlying section 325(0)(1): To pr.)mote greater energy efficiency while providing greater certainty to manufacturers who must plan and make the expenditures necessary to comply with an amended energy conservation standard-which is often a multi-year endeavor with substantial costs. We note that the relative certainty the interpretation set outin alternative (A) produces for manufacturers, which is a key comparative advantage ofthis interpretation over the competing one, is intimately tied to a proper effective date choice that facilitates prompt error correction, thereby potentially avoiding litigation that would seriously undermine the certainty soughtto be achieved.

DOE believes that this resolution of the ambiguities in the statute is consistent with the statute's text. structure, legislative history, andthe fundamental policy choices it makes. We believe that on balance this approachbetter accomplishes the statute's objectives than either adopting alternative (A) without the qualification set out above, thereby establishing a set ofprocedures thatcouldhave the effect ofpreventingthe Secretary, within a short period after publication ofa final rule thatwould modify such standards, from correcting defects in them that

come to his attention; or adopting alternative (B). therebyreadingthe phrase "minimumrequired energy efficiency" to encompass only energy efficiency standards as ofthe date upon which manufacturers have to comply with those standards. Although at least the latter approach may well be a permissible interpretation ofsection 325(0)(1), DOE believes that the view set out in our proposed rule is the better
one.

The latter view-that a standard is only covered by section 325(0)(1) after manufacturers are required to comply with it-does at first blush appear to be the most natural reading ofthe phrase. This view, however, is in tension with the rest ofthe sentence, which, as explained above, suggests that the relevant point ofcomparison is the standard being amended. regardless of whether manufacturers actually have to comply with it. Moreover, ifadopted, this view would allow the Secretary to change the energy efficiency standards right up to the minute before the compliance date. This seems to slight important reliance interests given significant weight in oilier respects by EPCA's provisions on central air conditioner standards. For example. section 325(d) provides that wiili respect to central air conditioners, any amended standard contained in a final rule published on January 1, 1994, can apply only to products manufactured on
or after January 1, 1999. It similarly provides iliat any amended standard contained in a final rule published between January 1, 1994, and January 1, 2001, can apply only to products manufactured on or after January 1, 2006. The purpose ofthese delays is plainly to give manufacturers a significant amount oftime to develop and manufacture new products after a
new standard is adopted butbefore it becomes enforceable. These delays also suggest iliat a change ofstandard on ilie

eve ofthe manufacture ofa product would be quite disruptive-which stands to reason given ilie lead-time necessary to be in a position to manufacture a compliant product. Thus. to allow a standard to be blocked at ilie last minute before the compliance deadline would potentially leave a railier large residual uncertainty difficult to reconcile with ilie central purpose ofestablishing a climate of regulatory stability served by iliese closely related portions ofEPCA.

The legislative history ofsection 325(0)(1). aliliough sparse, also suggests that this interpretation may not be the

one best suited to accomplish ilie statute's objectives. In discussing this provision in the House bill, the House report states:

DOE may not prescribe an amended standard that increases the maximum allowable energy use or decreases the minimum required energy efficiency of a covered product. The purpose ofthis requirement is to prevent the Secretary from weakening any energy conservation standard

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for a covered product, whether established in the CRA, before a final rule can become 325(o)(1) and its companion provisions this Act or subsequently adopted. This serves "effective," DOE must send a report to and also comports well with the to maintainaclimateofrelativestabilitywith Congress (5U.S.C. 801(a)(1)(A) and (B)). ordinary understanding ofwhen a rule respecttofutureplanningbyallinterested With respect to a "major rule" within containing such standards has parties^ * 'the meaning of5 U.S.C. 804(2), the CRA established "requirelments]." House Report No. 100-11 at p. 22 provides for thepassing ofa 60- DOE's decision to exercise its (emphasis added). calendar-day-lie-before-the-Congress discretion to adopt this interpretation of

This language suggest that section period, after submission ofthe agency section 325(o)(1) is not meant to 325(o)(1) was specifically expected, at report, at the end ofwhich a final rule intimate a view with respect to or least in the view ofthe House could become effective in the absence of suggest how anti-backsliding provisions Committee, to actharmoniously with a Congressional resolution of in other statutes should be interpreted. the other provisions ofEPCA discussed disapproval (5 U.S.C. 801(a)(3)). CRA Decisions ofthat type would ofcourse above in facilitating regulatory certainty allows for an exception tothe 60-day- turn on the specific language and policy The latter purpose isbetter lie-before requirement only ifthe of those provisions,just as today's accomplished by construing the President determines that a major rule decision did here. provision to become applicable at a should take effect before the end ofthat Based on this consideration ofthe point well before the compliance date. period because ofan imminent health or meaning of section 325(o)(1), DOE

On the other hand, the reliance safety threat or other emergency; proposed to adopt a series of interests at stake also are not best served becau se itis lecessary to the amendments to the EPCA rules intended enfor ement If criminal laws or to address these general issues. First, it in the long run by taking the opposite nation -l sec,iity; or ifit is issued proposed definitions ofthe terms
course and adopting the view that "maximum allowable energy use" and 

### section 325(o)(1) bbecomes applicable at pursu It to a,~atuteimplementing an "maximum allowableenergy use and internc tional trade agreement (5 U.S.C. "minimum required energy efficiency" the earliest possible moment. Let us 801(c)). as energy conservation standards imagine, for example, that DOE were In DeE's view, this last set of established by a final rule that has routinely to make final rules containing considera-ions a so points the way to become effective in the sense that it has standards potentially subject to section the answer to the question ofat what modified the Code ofFederal 325(o)() effective as soon as possible time amencmentr to an energy- Regulations. It further proposed to under the Administrative Procedure Act efficiency-setting-i;tandard should best include in its definition that to qualify, (APA). This would likely result in its be viewed as having set "minimum the final rule has to have made that making such rules effective 30 days after required energy pfficiency" benchmarks. modification on a date selected publication. DOE also could refuse to For the reasons explained at the consistent with the CRA and other reconsider any aspect of such a rule beginning ofthis section, that time must applicable law. Finally, in order to relevant to the standard (unless it could be after the final rulemaking the avoid confusion, it proposed a technical complete its consideration and correct amendments to the standard is in effect. amendment adding a definition ofthe any errors within that 30-day time But, consistent with the objective of EPCA term "effective date," which period), no matter how serious or section 325(o)(1) and the other closely EPCA, inconsistently with the Office of legitimate a question might be raised, related EPCA provisions of promoting Federal Register guidance, treats as since to do so effectively, it would have regulatory certainty, and to harmonize synonymous with "compliance date." to prevent the standard from going into section 325(o)(1) with common B. DiscussionofPublicComments on effect. administrative practice and the CRA, B nics f Pvon

This approach, however, would not such final rules should ordinarily be theAn-BackslidingProvision be the best way for DOE to promote made effective only after a reasonable DOE's analysis of section 325(o)(1) regulatory certainty either. It is common hiatus after the date ofpublication has and related proposals were the subject for agencies to entertain petitions for elapsed, allowing for prompt use of ofcomment by the environmental reconsideration at least for a short ordinary administrative error correction advocates and by ARI. Their comments period after issuance ofa final rule as procedures and completion of elaborated upon the basic positions each well as to correct errors on their own congressional review under CRA. This had taken in connection with ARI's motion during that time. Moreover, is the earliest that manufacturer petition for reconsideration. The there is good reason why agencies planning in reliance on a final major environmental advocates prefaced their follow this course, since otherwise such rule to amend appliance energy comments with the observation that

errors would have to await the conservation standards can realistically ultimately the question whether the completion ofjudicial review before be expected tobegin. The certainty of anti-backsliding provision prevents DOE they could be corrected, thereby the regulatory regime sought to be from withdrawing theJanuary 22 final creating substantial delay and achieved therefore cannot occur until rule and proposing a 12 SEER standard uncertainty. Accordingly, this approach that time. would likely be resolved in the Federal too, in addition to running counter to Accordingly, DOE believes it should litigation previously mentioned (see ordinary administrative practices that construe section 325(o)(1) as applying to "Rulemaking History."). there is no reason to believe section standards designed to set "minimum Environmental Advocates" Views 325(o)(1) was intended to abrogate, is required energy efficiency" benchmarks
not the best way to advance the at the point in time a final rule The environmental advocates, led by regulatory stability sought by section containing such a standard becomes the Natural Resources Defense Council 325(o)(1) and the other related EPCA effective. It also believes, however, that (NRDC) and several states, argue that provisions discussed above. it should take care to select effective EPCA's anti-backsliding provision

With respect to major rules, this dates for final rules containing such applies uponpublication offinal approach also would create unnecessary standards that are consistent with the standards in the Federal Register, and conflict between section 325(o)(1) and CRA and any other applicable law. This that DOE is powerless thereafter to the Congressional Review Act (CRA) (5 approach will best promote the entertain and grant a petition for U.S.C. 801-804) enacted in 1996. Under regulatory certainty sought by section reconsideration that requests lower 

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for a covered product, whether established in this Act or subsequently adopted. This serves to maintain a climate of relative stabilitywith respect tofutureplanningbyall interested parties * * * 

### House Report No. 10(}-11 at p. 22 (emphasis added).

This language suggestthat section 325(0)(1) was specifically expected, at least in the view ofthe House Committee, to actharmoniously with the otherprovisions ofEPCA discussed above infacilitating regulatory certainty. The latter purpose is better accomplishedby construingthe provisiontobecome applicable at a point well before the compliance date.

Onthe otherhand,thereliance interests at stake also are notbest served inthe longrunbytaking the opposite

course and adoptingthe view that section 325(0)(1) becomes applicable at the earliest possible moment. Let us imagine, for example, thatDOE were routinely to make final rules containing standards potentially subject to section 325(0)(1) effective as soon as possible underthe AdministrativeProcedure Act (APA). Thiswould likelyresult inits making suchrules effective 30 days after publication. DOE also couldrefuse to reconsider any aspect ofsuch a rule relevant to the standard (unless it could complete its consideration and correct any errors withinthat 30-daytime period), no matter how serious or legitimate a question might be raised, since to do so effectively, it wouldhave to preventthe standard from going into effect.

This approach, however, would not be thebestway for DOE to promote regulatory certainty either. It

### is common for agencies to entertain petitions for reconsideration at leastfor a short period after issuance ofa final rule as well as to correct errors on their own motion duringthat time. Moreover, there is good reason whyagencies follow this course, since otherwise such

errors would have to await the completion ofjudicialreview before they couldbe corrected,thereby creating substantial delay and uncertainty. Accordingly, this approach too, in addition to runningcounterto ordinary administrative practicesthat there is noreason to believe section 325(0)(1) was intendedto abrogate, is notthe bestway to advance the regulatory stability soughtby section 325(0)(1) andthe otherrelatedEPCA provisions discussed above.

With respect to majorrules, this approach also wouldcreate unnecessary conflictbetween section 325(0)(1) and the Congressional Review Act (CRA) (5 U.S.C. 801-804) enacted in 1996. Under the CRA, before a final rule canbecome "effective," DOE must send a reportto Congress (5 U.S.C. 801(a)(1)(A) and (B)). Withrespect to a "majorrule" within the meaning of5 U.S.c. 804(2), the CRA provides for thepassing ofa 60- calendar-day-lie-before-the-Congress period, after submission ofthe agency report, atthe end ofwhich a final rule couldbecome effective in the absence of

a Congressional resolution of disapproval (5 U.S.C. 801(a)(3». CRA allows for an exception to the 60-daylie-before requirement only ifthe President determines that a major rule should take effectbefore the end ofthat periodbecause ofan imminenthealth or safety threat or other emergency; becau ,e it is lecessaryto the enfor(ement l,fcriminal laws or nation

### 11 sec.n'ty; or ifit is issued pursue 1tto a**~tatute** 

### implementing an internE :ional tr"de agreement (5 U.S.c. 801(c».

InDOE's vi£:w. this last set of considera:ions a**~o** 

### points the way to the answer to the question ofat what time**amenc.'ment~** 

### to an energyefficiency-stltting-:ltandard should best beviewed a6 having set "minimum required energy pfficiency"benchmarks. Forthe reasons explained at the beginning ofthis section, that time must be after the final rulemaking the amendments to the standard is in effect. But, consistentwith the objective of section 325(0)(1) and the other closely related EPCA provisions ofpromoting regulatory certainty, and to harmonize section 325(0)(1) with common administrative practice and the CRA, suchfinal rules should ordinarilybe made effective only after a reasonable hiatus after the date ofpublication has elapsed, allowing for promptuse of ordinary administrative error correction procedures andcompletion of congressionalreview underCRA. This is the earliestthat manufacturer planninginreliance on a final major rule to amend appliance energy conservation standards canrealistically be expectedto begin. Thecertainty of the regulatory regime sought to be achievedtherefore cannot occuruntil that time.

Accordingly, DOE believes it should construe section 325(0)(1) as applyingto standards designed to set "minimum required energy efficiency"benchmarks atthe pointintime a final rule containing such a standardbecomes effective. It

### also believes, however, that it shouldtake care to selecteffective dates for fmal rules containing such standardsthat are consistentwith the CRA and any other applicable law. This approach will best promotethe regulatory certainty soughtby section 325(0)(1) andits companionprOvisions and also comports well with the ordinary understanding ofwhen a rule containing such standards has established "requirelmentsl."

DOE's decision to exercise its discretion to adoptthis interpretation of section 325(0)(1) is not meant to intimate a view with respect to or suggest how anti-backsliding provisions in other statutes shouldbe interpreted. Decisions ofthat type would ofcourse turn on the specific language andpolicy ofthose provisions,just as today's decision did here.

Based on this consideration ofthe meaning ofsection 325(0)(1), DOE proposed to adopt a series of amendments to the EPCA rules intended to address these general issues. First, it proposed definitions ofthe terms "maximum allowable energy use" and "minimumrequired energy efficiency"

as energy conservation standards established by a final rulethat has become effective inthe sensethat it 

### has modified the Code ofFederal Regulations. It 

### further proposed to includein its definition thatto qualify, the final rule has to have madethat modification on a date selected consistent with the CRA and other applicable law. Finally, in order to avoid confusion, it proposed a technical amendment adding a definition ofthe EPCA term "effective date," which EPCA, inconsistently with the Office of Federal Register guidance, treats as synonymouswith "compliance date."
B. Discussion of Public Comments on theAnti-BackslidingProvision

DOE's analysis ofsection 325(0}(1) andrelated proposals were the subject ofcommentbythe environmental advocates andby ARI. Their comments elaborated upon thebasic positions each had taken in connection with ARI's petition for reconsideration. The environmental advocates prefaced their comments with the observationthat ultimately the question whetherthe anti-backsliding provision prevents DOE from withdrawingthe January 22 final rule andproposing a 12 SEER standard would likely beresolved inthe Federal litigation previously mentioned (see "Rulemaking History.").
1. Environmental Advocates" Views

The environmental advocates, ledby the Natural Resources Defense Council (NRDC) and several states, argue that EPCA's anti-backsliding provision applies uponpublication offinal standards intheFederalRegister, and that DOE is powerless thereafter to entertain and grant a petition for reconsideration thatrequests lower

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amended standards. (NRDC, No. 250; NRDC argues that the key word in DOE also thinks NRDC's view of the Attorneys General ofNew York and section 325(o)(1) is "prescribe," which importance ofthe word "prescribe" in Massachusetts, No. 277; State of it states occurs when a final rule is section 325(o)(1) is wrong. The word Vermont, No. 268; Attorney General of published in the Federal Register, and "prescribe" is nowhere defined in California, No. 249). that it is the act of "prescribing" a final EPCA, but it does not necessarily mean

The NRDC commented that the APA rule that triggers application ofthe anti- "publication." For example, section contains no provision for backsliding provision. NRDC finds 325(p), concerning the procedure for "withdrawing" a final rule, and that if supports for this interpretation of prescribing any new or amended DOE wishes to change the rule, it may "prescribe" in section 325(p), which standard, provides that "la] final rule
propose to "amend, revise or revoke" includes publication of a final rule as prescribing an amended or new energy the rule consistent with the APA. NRDC the last step in the procedure for conservation standard or prescribing no also states there is no statutory or prescribing a new or amended standard, amended or new standard for a type (or regulatory provision allowing interested and in the deadlines for various class) of covered products shall be
persons to "petition for amendments ofproduct standards that published as soon as practicable * * *" reconsideration" ofa final rule. DOE are determined by reference to the date 42 U.S.C. 6295(p)(4). The use ofthe does not believe these arguments have ofpublication of the previous standard. word "prescribe" in the same provision merit. DOE chose to use the word NRDC also points to House Report in which the word "publish" is used is "withdraw" at the suggestion of staff in language stating that action 325(o)(1) a clear indication that Congress may the Office ofthe Federal Register. prevents DOE from w 'akenir. any have considered the two words to have "Withdraw" is the term that Office uses energy conservation si nd!2rd for a different meanings. It is not necessary to
to describe the action ofan agency in product "whether esta lishel ;n this resolve the question ofthe meaning to pulling back a rule document before it Act or subsequently ad )pted," and the word "prescribe" because it begs the is officially filed and published in the states that use ofthe w ,rd "adc oted" critical question ofwhat DOE may not Federal Register. (Document Drafting confirms its view that tlE anti- prescribe under section 325(o)(1). With Handbook, Chapter 4, p. 4-2 (Oct. backsliding provision applies when a respect to central air conditioners and 1998)). The Office ofthe Federal rule is published in the Feieral heat pumps, the what that DOE may not Register decided that the word Register. Thus, under NRDC's prescribe under section 325(o)(1) is any "withdraw" also is apt when an agency interpretation, once DOE publish d the amended standard "which increases the
proposes to rescind a published final January 22 final rule, it was oowerless * * * minimum required energy rule before it becomes effective, thus to reconsider it and propose 

### a lower efficiency" ofa central air conditioner pulling it back before it modifies the energy conservation standard. or heat pump. We continue to believe Code ofFederal Regulations. (Document

. . that standards in a published rule that Drafting Handbook, Chapter 2, p. 2-33 DOE redeer that the term mnt mum have never become effective are in no (Oct. 1998)). By proposing to withdraw ed sense "required" energy efficiency January

22 final rule and only descriptor ofenergy or water levels, and therefore cannot be the th12 SEER stanary 22 final rule andproposing efficiency used in section 325(o)(1), but baseline for determining whether the a 12 SEER standard, DOEwas proposing it isthe only descriptor that applies to baseline or determning whethe actions that, if adopted and t s the only descriptor that applies to amended standards increase the implemented in a future final rule, standards for central air conditioners minimum required energy efficiency. would rescind or repeal the January 22 and heat pumps. That is why DOE's Finally, DOE disagrees with NRDC's final rule. This course of action is analysis focuses on the word conclusion that the structure and entirely consistent with the APA. While "required." It is true that for other language of EPCA point to the date of

an agency generally has inherent covered products, the applicable publication of amended standards as the authority to reconsider its decisions, as descriptor would be "maximum time at which section 325(o)(1) applies. the comments ofARI state (ARI, No. allowable energy use" or "maximum More specifically, DOE does not think 259, at p. 6), the APA specifically gives allowable water use." For those the statutory intervals for issuance of interested persons the right to petition products, the key word would be amended standards, which reference to for rulemaking (5 U.S.C. 553(e)). "allowable." But for the same reasons the date the previous amendment is

NRDC further believes DOE has why, as explained in DOE's analysis published, are relevant to the question misconstrued section 325(o)(1) by above, the SEER and HSPF levels set out ofwhen the anti-backsliding provision placing undue weight on the word in the January 22 final rule never in any applies. The fact that Congress required "required" in the term "minimum sense achieved the status of being the DOE to periodically review and publish required energy efficiency." (Several "required" "minimum energy amendments to standards does not seem state officials submitted comments efficiency" benchmarks, it is not much to have any bearing on the question of similar in most respects to the NRDC easier to see how a rule that never what point in time standards are views summarized here and in the became effective could set "maximum required for purposes of section discussion that follows.) NRDC faults allowable" amounts ofwater or energy 325(o)(1). DOE for ignoring the terms "maximum use. At least until a new rule The Attorneys General of the States of allowable energy use" and "maximum establishing maximum allowable energy New York and Massachusetts attacked
water use" in the same provision. All of or water use became effective, the the legality ofDOE's February 2, 2001, these terms, NRDC argues, are simply "maximum allowable energy" or and April 20, 2001, notices delaying the
measurements ofenergy conservation "maximum allowable water use" for a effective date ofthe January 22 final rule and do not refer in any way to product subject to one ofthese (Attorneys General of New York and compliance dates or requirements for standards would remain the preexisting Massachusetts, No. 277). In their view, manufacturers. NRDC, therefore, standard. Accordingly, today's rule DOE lacked good cause for not concludes that the word "require" is contains definitions of "maximum proposing the delays for public ambiguous and that one needs to look allowable energy use" and "maximum comment. They dismiss DOE's analysis
tothe entire statutory scheme to allowable water use" that parallel the of, and provisions for, implementing the determine when the anti-backsliding definition of "maximum required anti-backsliding provision as apost hoc provision applies. energy efficiency" that DOE adopts. attempt to justify its allegedly illegal 

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amended standards. (NRDC. No. 250; Attorneys General ofNew York and Massachusetts. No. 277; State of Vermont. No. 268; Attorney General of California. No. 249).

The NRDC commented that the APA contains no provision for "withdrawing" a final rule. and that if DOE wishes tochange therule. it may propose to "amend. revise orrevoke" therule consistent with the APA. NRDC also states there is no statutory or regulatory provision allowing interested persons to "petition for reconsideration" ofa final rule. DOE does not believe these arguments have merit. DOE chose to use the word "withdraw" atthe suggestion ofstaffin the Office ofthe Federal Register. "Withdraw" is the term that Office uses to describe the action ofan agency in pulling back a rule documentbefore it is officially filed andpublishedin the FederalRegister. (Document Drafting Handbook. Chapter 4. p. 4-2 (Oct. 1998». The Office ofthe Federal Register decided that the word "withdraw" also is apt when an agency proposes to rescind a published final rule before itbecomes effective. thus pulling it backbefore it modifies the Code ofFederal Regulations. (Document Drafting Handbook, Chapter 2, p. 2-33 (Oct. 1998)). By proposingto withdraw the January 22 final rule andproposing

a 12 SEER standard. DOE was proposing actions that, ifadopted and implemented in a future final rule, would rescind or repeal theJanuary 22 final rule. This course ofaction is entirely consistent with the APA. While

an agency generally has inherent authority to reconsider its decisions, as the comments ofARI state (ARI. No. 259, at p. 6), the APA specifically gives interested persons the right to petition for rulemaking (5 U.S.c. 553(e)).

NRDC further believes DOE has misconstrued section 325(0)(1) by placing undue weight onthe word "required" intheterm "minimum required energy efficiency." (Several state officials submitted comments similar in most respects to the NRDC views summarized here and in the discussion that follows.) NRDC faults DOE for ignoring the terms "maximum allowable energy use" and "maximum water use" in the same provision. All of theseterms. NRDC argues, are simply measurements ofenergy conservation and do notrefer in any way to compliance dates orrequirements for manufacturers. NRDC, therefore, concludes thatthe word "require" is ambiguous and that one needs to look to the entire statutory scheme to determine when the anti-backsliding provision applies. NRDC argues that the key word in section 325(0)(1) is "prescribe." which it states occurs when a final rule is published in the Federal Register, and that it is the act of"prescribing" a final rule thattriggers application ofthe antibacksliding provision. NRDC finds supports for this interpretation of "prescribe" in section 325(p). which includes publication ofa final rule as the last step in the procedure for prescribing a new Dr amended standard, and in the deadlines for various amendments ofproduct standards that

are determined by reference to the date ofpublication ofthe previous standard. NRDC also pointsto House Report language stating that f ection 325(0)(1) prevents DOE from w ·akeniq any energy conservation Sl**mt:!~rd** for a product "whetheresta '!ishei ;n this Act or subsequently ad llJted,"**~nd** states that use ofthe w lId "adc'Jted" confirms its view that tJlt anti· backsliding provision applies when a rule is published inthe ftderal Register. Thus. under NRD:'s interpretation, onceDOE pl.'blishfd the January 22 final rule. it was )lowerless to reconsider it and propose ,l lownr energy conservation standard.

DOE agrees thatthe term "minimum required energy efficiency" is not the only descriptor ofenergy orwater efficiency used in section 325(0)(1), but it is the only descriptor that applies to standards for central air conditioners and heat pumps. That is why DOE's analysis focuses on the word "required." Itis true that for other covered products, the applicable descriptor would be "maximum allowable energy use" or "maximum allowable water use." For those products, the key word wouldbe "allowable." But for the same reasons why, as explained in DOE's analysis above. the SEER and HSPF levels set out inthe January 22 final rule never in any
sense achieved the status ofbeing the "required" "minimumenergy efficiency" benchmarks, it is not much easierto see how a rule that never became effective could set "maximum allowable" amounts ofwater or energy
use. At least until a new rule establishing maximum allowable energy
or water use became effective, the "maximum allowable energy" or "maximum allowable water use" for a product subject to one ofthese standards wouldremain the preexisting standard. Accordingly, today's rule contains definitions of"maximum allowable energy use" and "maximum allowable water use" that parallel the definition of"maximumrequired energy efficiency" that DOE adopts. DOE also thinks NRDC's view ofthe importance ofthe word "prescribe" in section 325(0)(1) is wrong. The word "prescribe" is nowhere defined in EPCA. but it does not necessarily mean "publication." Forexample, section 325(p), concerning the procedure for prescribing any new or amended standard, provides that "[al final rule prescribing an amended or new energy conservation standard or prescribing no amended Dr new standard for a type (or class) ofcovered products shall be published as soon as practicable * * *" 42 U.S.C. 6295(p)(4). The use ofthe word "prescribe" in the same provision in which the word "publish" is used is

a clear indication that Congress may have considered the two words to have different meanings. It is not necessary to resolve the question ofthe meaning to the word "prescribe" because it begs the critical question ofwhat DOE may not prescribe under section 325(0)(1). With respect to central air conditioners and heat pumps, the what that DOE may not prescribe under section 325(0)(1) is any amended standard "which increases the * * * minimumrequired energy efficiency" ofa central air conditioner

or heat pump. We continueto believe that standards in a published rule that have never become effective are in no
sense "required" energy efficiency levels, and therefore cannot be the baseline for determining whether the amended standards increase the minimumrequired energy efficiency.

Finally, DOE disagrees with NRDC's conclusion that the structure and language ofEPCA point to the date of publication ofamended standards as the time at which section 325(0)(1) applies. More specifically, DOE does not think the statutory intervals for issuance of amended standards, which reference to the date the previous amendment is published. are relevant to the question ofwhen the anti-backsliding provision applies. The fact that Congress required DOE to periodically review and publish amendments to standards does not seem to have any bearing on the question of what point in time standards are required for purposes ofsection 325(0)(1).

The Attorneys General ofthe States of New York and Massachusetts attacked the legality ofDOE's February 2, 2001, and April 20, 2001, notices delaying the effective date ofthe January ZZ final rule (Attorneys General ofNew York and Massachusetts, No. 277). In their view, DOE lacked good cause for not proposing the delays for public comment. They dismiss DOE's analysis of. and proviSions for, implementing the anti-backsliding provision as a

### post hoc attempt to justify its allegedly illegal

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delays oftheJanuary 22 final rule. section 325(o)(1) can be reasonably before the compliance date, this view Implicit in their comment is the view interpreted to apply upon the would slight important reliance that theJanuary 22 final rule actually publication offinal standards in the interests that, as DOE explained in its became effective and, thus,became the Federal Register. However, assuming analysis, are given significant weight by required standards for purposes of DOE had the discretion to adopt such an other provisions and the legislative section 325(o)(1). Based on this interpretation, DOE would not choose history ofEPCA. For these reasons, DOE understanding ofthe anti-backsliding the date ofpublication as the date for continues to believe that section provision, the States ofNew York and purposes of section 325(o)(1). As 325(o)(1) should be construed as Massachusetts consider DOE's action to explained previously, apractice of applying to standards designed to set withdraw theJanuary 22 final rule and routinely making published standards "minimum required energy efficiency" adopt 12 SEER standards to be a effective in the shortest time after benchmarks at the point in time a final "rollback" ofestablished standards. publication (normally 30 days after rule containing such a standard

As explained in theFebruary 2, 2001, publication under the APA) is not likely becomes effective for purposes of notice, DOE temporarily delayed the to provide greater certainty about the revising the Code ofFederal effective date ofthe January 22 final rule point in time when standards would Regulations, as long as the effective date in conjunction with Executive branch take effect. IfDOE were unable to that is selected is consistent with the wide direction from the Assistant to the respond to legitimate requests for CRA and any other applicable law. In President and Chief ofStaff. DOE reconsideration and correction oferror;, today's rule, DOE adopts provisions that explained that seeking public comment then the only avenues available to in plement this approach. would be impracticable and contrary to aggrieved stakeholders would be ARI stated that ifDOE adopted the the public interest, and further that the lawsuits in Federal courts or efforts to aTp roach it proposed in the July 25 imminence ofthe effective date in the obtain a legislative reversal under the SI O.PR, then it would like the rule constituted good cause for making CRA. This would not lead to definitions of "minimum required the temporary delay effective upon expeditious correction oferrors or enerr y efficiency" and "maximum publication. 66 FR 8745-46. Thefurther resolution ofissues and would not allowv able energy use" revised to ensure postponement ofthe effective date on advance the goal ofregulatory certainty. that DOE has sufficient time to complete April 20, 2001, was based in part on Such a practice also would create any ac ninistrative action it takes in several reasons why seeking public needless conflict with the CRA's 60-day respon ;e to a petition for
comment and delaying the effective date lie-before-the-Congress provision for reconsiieration. ARI recommended ofthe action were impracticable, major rules. adding vo each definition the words "or
unnecessary, and contrary to the public, .the date on which DOE completes interest. 66 FR 20191. These reasons are 2 ARI s Viewsaction on any timely-initiated
not repeated in full here, but DOE ARI agrees with DOE that the existing administrative reconsideration, explained why in light ofARI's petition "minimum required energy efficiency" whichever is later." (ARI, No. 259 at pp. for reconsideration and its lawsuit in levels for central air conditioners and 20-21). We think ARI's suggested the Court ofAppeals for the Fourth heat pumps, which DOE may not lower, language is a useful addition to the Circuit, DOE concluded there was good are the standards established by definitions. Therefore, we have revised

cause for further delaying theJanuary 22 NAECA, effective onJanuary 1, 1992 the proposed definitions of "maximum final rule's effective date pending (i.e., 10 SEER/6.8 HSPF for split systems allowable energy use" and "minimum consideration ofARI's petition and and 9.7 SEER/6.6 HSPF for single required energy efficiency," to be added judicial review. Thus, DOE thinks the package systems). However, ARI to section 430.2, accordingly. In short-term delays oftheJanuary 22 final believes the term "minimum required addition, DOE adds a similar definition rule's effective date to deal with energy efficiency" should be understood of "maximum allowable water use," substantial legal questions were lawful, to mean the existing efficiency standard which was inadvertently omitted in the and it rejects the characterization of as ofthe effective date under EPCA, i.e., July 25 SNOPR. DOE's proposals as a "rollback" ofthe the date on which the standard is Under the provisions adopted in
energy conservation standards. required to be complied with (ARI, No. today's final rule, DOE will select a date

The Attorneys General ofthe States of 259 at p. 19). ARI believes its for the "Effective Date" line ofthe New York and Massachusetts and the interpretation would avoid the risk of notice offinal rulemaking that in most American Council for an Energy- having the anti-backsliding provision instances will be 60 to 80 days after the Efficient Economy (ACEEE) argued that apply unreasonably early, which could date ofpublication. (DOE has chosen 75 choosing an effective date for purposes prevent DOE from taking appropriate days after the date ofpublication for the of section 325(o)(1) other than the date administrative action to correct a effective date oftoday's rule.) DOE ofpublication ofamended standards promulgated standard or to respond to would expect that any petition for would lead to delay and cause extraordinarily changed circumstances. reconsideration, to be considered uncertainty with respect to when DOE acknowledged in its analysis of timely, ordinarily would be submitted manufacturers must make investments section 325(o)(1) that theview that a to DOE before the effective date needed to comply with amended standard is only covered by the anti- specified in the notice offinal standards. (Attorneys General ofNew backsliding provision after rulemaking. York and Massachusetts, No. 277 at p. manufacturers are required to comply DOE didnot receive any public 9; ACEEE, No. 284 at p. 3). The with it is an arguable one. Thisview, comments on the proposed definition of Northeast Energy Efficiency however, is in tension with the rest of the term "effective date" as used in Partnerships, Inc. (NEEP) argued DOE's the sentence, which suggests that the EPCA and 10 CFR 430.32. This proposed approach would give relevant point ofcomparison is the definition clarifies that for purposes of stakeholders another opportunity totry standard being amended, regardless of construing the term under EPCA (but to influence decision makers and would whether manufacturers actually have to not for purposes ofdetermining the "politicize" the standard setting comply with it. Moreover, by allowing point at which amendments to a process. (NEEP, No. 273 at p. 3). As the Secretary to change the energy standard qualify for protection under explained above, DOE does not believe efficiency standards at any point in time section 325(o)(1)), the "effective date" is 

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delays ofthe January 22 final rule. Implicit intheir comment is the view thattheJanuary 22 final rule actually became effective and, thus,becamethe required standards for purposes of section 325(0)(1). Based onthis understanding ofthe anti-backsliding provision,the States ofNew York and Massachusetts considerDOE's actionto withdrawtheJanuary 22 final rule and adopt 12 SEER standards to be a "rollback" ofestablished standards.

As explained inthe February 2, 2001, notice, DOE temporarily delayed the effective date oftheJanuary 22 final rule inconjunctionwithExecutivebranch wide direction from theAssistant to the President and ChiefofStaff. DOE explained that seeking public comment wouldbe impracticable and contrary to the public interest, and further thatthe imminence ofthe effective date inthe rule constituted good cause for making thetemporary delay effective upon publication. 66 FR 8745-46. Thefurther postponement oftheeffective date on April 20, 2001, was based inpart on several reasons why seeking public comment and delaying the effective date ofthe action were impracticable, unnecessary, and contrarytothe public interest. 66 FR 20191. These reasons are notrepeated in full here, butDOE explained why in light ofARl's petition for reconsideration and its lawsuit in the Court ofAppeals for the Fourth Circuit, DOE concluded there was good

cause for further delayingtheJanuary 22 final rule's effective date pending consideration ofARl's petition and judicialreview. Thus, DOE thinksthe short-term delays oftheJanuary 22 final rule's effective date to deal with substantial legal questions were lawful, and it

### rejects the characterization of DOE's proposals as a "rollback" ofthe energy conservation standards.

ToeAttorneys General ofthe States of New York andMassachusetts andthe American Council for an EnergyEfficient Economy (ACEEE) argued that choosing an effective date for purposes ofsection 325(0)(1) otherthanthe date ofpublication ofamended standards would lead to delay and cause uncertainty withrespect to when manufacturers must make investments neededto complywith amended standards. (Attorneys General ofNew York andMassachusetts,No. 277 at p. 9; ACEEE, No. 284 at p. 3). The NortheastEnergy Efficiency Partnerships, Inc. (NEEP) argued DOE's proposed approach wouldgive stakeholders another opportunity to try to influence decision makers andwould "politicize"the standard setting process. (NEEP, No. 273 at p. 3). As explained above, DOE does notbelieve section 325(0)(1) canbe reasonably interpretedto apply upon the publication offinal standards inthe 

### Federal Register. However, assuming DOE had the discretion to adopt such an interpretation, DOE would not choose the date ofpublication as the date for purposes ofsection 325(0)(1). As explained previously, a practice of routinely making published standards effective in the shortesttime after publication (normally 30 days after publication underthe APA) is notlikely toprovidegreatercertainty about the point intime when standards would take effect. If

### DOE were unableto respond to legitimate requests for reconsideration and correction oferror;, thenthe only avenues available to aggrieved stakeholders wouldbe lawsuits in Federal courts or efforts to obtain a legislative reversal underthe CRA. This would not lead to expeditious correction oferrors or resolution ofissues and wouldnot advance thegoal ofregulatory certainty. Sucha practice also would create needless conflict withthe CRA's 60-day lie-before-the-Congress provision for major rules.
2. ARl's Views

ARl agrees with DOE thatthe existing "minimumrequired energy efficiency" levels for central air conditioners and heatpumps, which DOE may not lower,

are the standards establishedby NAECA, effective on January I, 1992 (j.e., 10 SEER/6.8 HSPF for split systems and 9.7 SEER/6.6 HSPF for single package systems). However, ARl believes the term "minimumrequired energy efficiency" shouldbe understood to mean the existing efficiency standard

as ofthe effective date underEPCA, 

### i.e., the date onwhich the standard is required to be complied with (ARl, No. 259 at p. 19). ARl believes its interpretationwould avoid therisk of having the anti-backsliding provision applyunreasonably early, which could preventDOE from taking appropriate administrative action to correct a promulgated standard orto respond to extraordinarily changed circumstances.

DOE acknowledged inits analysis of section 325(0)(1) thattheview that a standard is onlycoveredby the antibackslidingprovision after manufacturers are required to comply with it is an arguable one. Thisview, however, is in

### tension withtherest of the sentence, which suggests thatthe relevantpoint ofcomparison is the standard being amended, regardless of whether manufacturers actually have to comply with it. Moreover, by allowing the Secretary to change the energy efficiency standards at any point in time before the compliance date, this view would slight important reliance interests that, as DOE explained in its analysis, are given significant weightby other provisions and the legislative history ofEPCA. Forthese reasons, DOE continues to believe that section 325(0)(1) shouldbe construed as applyingto standards designed to set "minimumrequired energy efficiency" benchmarks at the point in time a final rule containing such a standard becomes effective for purposes of revising the Code ofFederal Regulations, as long as the effective date that**~s** 

### selected is consistent with the CRA and any other applicable law. In today's rule, DOE adoptsprovisions that in plement this approach.

ARI stated that ifDOE adopted the aPJ roach it proposed inthe July 25 SW.lPR, then it would like the de.rillitions of"minimumrequired**enl'r~** 

### y efficiency" and "maximum**allo~** 

### 'ible energy use" revised to ensure thatDOE has sufficienttime to complete any a( 

### ninistrative action ittakes in l'espon 1e to a petition for**rl~consi**

### ieration. ARI recommended addingto each definition the words "or thl' datf. on which DOE completes action on any timely-initiated administrative reconsideration, whichever is later." (ARI, No. 259 at pp. 20-21). We thinkARI's suggested language is a useful addition to the definitions. Therefore, we have revised the proposed definitions of"maximum allowable energy use" and "minimum required energy efficiency," to be added to section 430.2, accordingly. In addition, DOE adds a similar definition of"maximum allowable wateruse," which was inadvertently omitted in the July 25 SNOPR.

Underthe provisions adopted in today's final rule, DOE will select a date for the "Effective Date"line ofthe notice offinal rulemaking that inmost instances will be 60 to 80 days after the date ofpublication. (DOE has chosen 75 days after the date ofpublication for the effective date oftoday'srule.) DOE would expect that any petition for reconsideration, to be considered timely, ordinarilywould be submitted toDOE before the effective date specified in the notice offinal rulemaking.

DOE didnotreceive any public comments onthe proposed definition of the term "effective date" as used in EPCA and 10 CFR 430.32. This definition clarifies that for purposes of construingthe term underEPCA (but not for purposes ofdeterminingthe pointat which amendments to a standard qualify for protection under section 325(0)(1)), the "effective date" is

## EE-RM/STD-98-440- 3d

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the date on which an amended energy competition likelyto result from such heating systems. The Department of conservation standard becomes standard and shall transmit such Justice urged DOE to take these enforceable. DOE also did not receive determination, not later than 60 days after concerns into account and consider

comments on proposed section 430.34, the publication ofa proposed rule "setting a lower SEER standard for heat which tracks the language ofsection prescribing or amending an energy pumps, such as the standard included 325(o)(1). Therefore, DOE today adopts conservation standard, in writing to the in Trial Standard Level 2, and a lower

e325()(1). T herefore, DOE today adopts Secretary, together with an analysis ofthe SEER standard for air conditioners for these provisions without substantive nature and extent ofsuch impact. Any such SEER standard for air conditioners for change. determination and analysis shall be retrofit markets where there are space IV. Basis for DOE'sDecision To published by the Secretary in the Federal constraints and for manufactured Register. housing." 66 FR 7200. Withdraw the January22,2001, Final Regster housing." 66 FR 7200.

iRule 42 U.S.C. 6295(o)(2)(B)(ii). DOE published a final rule on January Rule 42 U.S.C. 6295(o)(2)(B)(i). 22 2 adopted standards that co t, .t is cr 22, 2001, that adopted standards that In the July 25 SNOPR, DOE discussed In context, it is clear that the term corresponded to Trial Standard Level 4 possible legal errors in the promulgation "the standard" in section 325(o)(2)(B)(i) (the next higher level) and prescribed a ofthe January 22 final rule and refers to any new or amended energy minimum SEER of 13 for all the product economic issues that DOE believed had conservation standard finally prescribed classes, except for niche products, with

not been adequately considered in by DOE under section 325(0) ofEPCA. a corresponding 7.7 HSPF. While the determining the energy efficiency levels Because the Department ofJustice must preamble to the final rule addressed the that are the maximum technologically transmit its determination to DOE Department of Just'ce's specific feasible and economically justified (66 within 60 days after the publication of concerns al: ut the proposed 12 SEER
FR 38827-29). On the basis ofthese a proposed rule, EPCA contemplates standards fc

- enira' air conditioners/13 possible legal and policy errors, DOE that the Department of Justice's SEER/7.7 Ht PF standard for central air proposed to withdraw the January 22 determination on the anti-competitive conditioning heat pump systems (66 FR
final rule and proposed to adopt a 12 effects ofa proposed rule usually will 7192-93), DOE did n;t have the benefit
SEER standard for most central air enable DOE to fulfill its substantive ofthe Departmnnt o,ustice's views on conditioners and heat pumps, rather obligation to consider the Department's the potential anti-corn etitive impact of
than the 13 SEER standard in the expert opinion on the anti-competitive the final 13 SEER stat ards for both air January 22 final rule (66 FR 38842). impact ofa final standard. However, as conditioners and heat pumps. This is DOE today finally withdraws the the following discussion shows, this particularly ofconcern ,n light of January 22 final rule and amends the will not always be the case. information in the TSD indicating that
energy conservation standards for DOE submitted the October 5, 2000, standards at Trial Standard Level 4 central air conditioners and heat pumps NOPRto the Attorney General for (uniform 13 SEER standards) could

at the 12 SEER level except for two review pursuant to the foregoing cause several major manufacturers to types of space-constrained products provisions. The NOPR described the consider selling their production assets (through-the-wall products and small range ofpotential trial standards rather than make the investment duct, high velocity systems) that are considered by DOE, and proposed required to meet the new standard or subject to lower standards. In taking this adoption of Trial Standard Level 3, i.e., face the loss of profits caused by the action, DOE corrects the legal and a minimum SEER of 12 for central air absence ofpremium products in the policy errors that were the basis for conditioner product classes and a SEER marketplace (seeJuly 25 SNOPR at DOE's decision to withdraw the January of 13, with a corresponding HSPF of 7.7, 38827). Therefore, DOE believes the 22 final rule. for central air conditioning heat pumps. Department of Justice's views on the The Department ofJustice, consistent potential of the standards in the January A. LegalIssues with its past practice, confined its 22 final rule to accelerate consolidation

In the July 25 SNOPR, DOE response to the proposed standards, in the industry should have been acknowledged that to comply with corresponding to Trial Standard Level 3. obtained. section 325(o)(2)(B)(i) ofEPCA, DOE The Department of Justice had several As part ofits review ofthe January 22 arguably should have invited the concerns about the proposed rule's final rule pursuant to the President's Department of Justice to submit a potential impact on competition (see Regulatory Review Plan, DOE on March supplemental statement of its views on December 4, 2000, letter in the 20, 2001, requested the views ofthe the potential anti-competitive impact of Appendix to this notice). First, the Department ofJustice on the 13

a 13 SEER standard for both central air Department ofJustice was concerned standards for central air conditioners conditioners and heat pumps which was the proposed rule would have a and heat pumps. The Department of included in the January 22 final rule (66 disproportionate impact on small Justice's letter responding to our request FR 38827-28). manufacturers. Second, it was is published in the Appendix to this

Section 325(o)(2)(B)(i) requires DOE concerned that the proposed standard notice. While some commenters were
to determine whether the benefits ofa for heat pumps, and in some instances critical ofthe substance of the

new or amended energy conservation the standard for air conditioners, would Department of Justice's determinations standard exceed its burdens by have an adverse impact on some about the anti-competitive impact of 13 considering "to the greatest extent manufacturers ofequipment tobe used SEER standards (see Section VI below). practicable" seven factors, including: to retrofit existing housing and used in none ofthe comments disputed DOE's "(V) the impact ofany lessening of manufactured housing. Third, itwas view that it should have obtained the competition, as determined in writing concerned that the proposed 13 SEER Department of Justice's views on 13 by the Attorney General, that is likely to for central air conditioning heat pumps SEER standards for both central air result from the imposition ofthe could cause consumers to shift from conditioners and heat pumps. standard" (42 U.S.C. 6295(o)(2)(B)(i)). heat pumps to other systems that A second legal error that DOE Section 325(o) also provides that: include resistance heat systems, considered in deciding to propose

For purposes ofclause (i)(V), the Attorney reducing the competition that presently withdrawal ofthe January 22 final rule General shall make a determination ofthe exists between manufacturers ofheat was the absence of any discussion of impact, ifany, ofany lessening of pumps and manufacturers ofthose other cumulative regulatory burden in the 

### EE·RM/STD-98-440

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# i

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the date on which an amended energy conservation standard becomes enforceable. DOE also did notreceive comments on proposed section 430.34, which tracks the language ofsection 325(0)(1). Therefore, DOE today adopts these provisions without substantive change.
IV. Basis for DOE's DecisionTo WithdrawtheJanuary22, 2001, Final Rule

In the July 25 SNOPR, DOE discussed possible legal errors in the promulgation ofthe January 22 final rule and economic issues that DOE believed had notbeen adequately considered in determiningthe energy efficiency levels that are the maximum technologically feasible and economically justified (66 FR 38827-29). On the basis ofthese possible legd and policy errors, DOE proposed to withdraw the January 22 final rule and proposedto adopt a 12 SEER standard for most central air conditioners and heat pumps,rather than the 13 SEER standard in the January 22 final rule (66 FR 38842). DOE today finally withdraws the January 22 final rule and amends the energy conservation standards for central air conditioners and heat pumps at the 12 SEER level except for two types ofspace-constrainedproducts (through-the-wall products and small duct, high velocity systems) that are subject to lower standards. In taking this action, DOE corrects the legal and policy errors that were the basis for DOE's decision to withdraw the January 22 final rule.
A. LegalIssues

In the July 25 SNOPR, DOE acknowledged that to complywith section 325(0)(2)(B)(i) ofEPCA, DOE arguably should have invited the Department ofJustice to submit a supplemental statement ofits views on the potential anti-competitive impact of

a 13 SEER standard for both central air conditioners and heat pumps which was included in theJanuary 22 final rule (66 FR 38827-28).

Section 325(0)(2)(B)(i) requires DOE to determine whether the benefits ofa
new or amended energy conservation standard exceed its burdens by considering "tothe greatest extent practicable" seven factors, including: "(V) the impact ofany lessening of competition, as determined in writing by the Attorney General, that is likely to result from the imposition ofthe standard" (42 U.S.C. 6295(0)(2)(B)(i)). Section 325(0) also provides that:

For purposes ofclause (i)(V), the Attorney General shall make a determination ofthe impact, ifany, ofany lessening of competition likely to result from such standard and shall transmit such determination, not later than 60 days after the publication ofa proposed rule prescribing or amending an energy conservation standard, in writing to the Secretary, together with an analysis ofthe nature and extent ofsuch impact. Any such determination and analysis shall be published by the Secretary in the Federal Register. 42 U.S.C. 6295(0)(2)(B)(ii).

In context, it is clear that the term "the standard" in section 325(0)(2)(B)(i) refers to any new or amended energy conservation standard finally prescribed by DOE under section 325(0) ofEPCA. Because the Department ofJustice must transmit its determination to DOE within 60 days after the publication of

a proposed rule, EPCA contemplates that the Department ofJustice's determination on the anti-competitive effects ofa proposed rule usually will enable DOE to fulfill its substantive obligation to considerthe Department's expert opinion on the anti-competitive impact ofa final standard. However, as the following discussion shows, this will not always be the case.

DOE submitted the October 5, 2000, NOPR to the Attorney General for review pursuant to the foregoing provisions. The NOPR described the range ofpotential trial standards considered by DOE, and proposed adoption ofTrial Standard Level 3, 

### i.e.,

a minimum SEER of 12 for central air conditioner product classes and a SEER of 13, with a correspondingHSPF of7.7, for central air conditioning heat pumps. The Department ofJustice, consistent with its past practice, confined its response to the proposed standards, corresponding to Trial Standard Level 3.

The Department ofJustice had several

concerns about the proposed rule's potential impact on competition (see December 4, 2000, letter in the Appendix to this notice). First, the Department ofJustice was concerned the proposed rule would have a disproportionate impact on small manufacturers. Second, it was concernedthatthe proposed standard for heat pumps, and in someinstances the standard for air conditioners, would have an adverse impact on some manufacturers ofequipmentto be used to retrofit existinghousing and used in manufactured housing. Third, it was concerned that the proposed 13 SEER for central air conditioning heat pumps could cause consumers to shift from heat pumpsto other systems that includeresistance heat systems, reducing the competition that presently exists between manufacturers ofheat pumps and manufacturers ofthose other heating systems. The Department of Justice urged DOE to take these

concerns into account and consider "setting a lower SEER standard for heat pumps, such as the standard included in Trial Standard Level 2, and a lower SEER standard for air conditioners for retrofit markets where there are space constraints and for manufactured housing." 66 FR 7200.

DOE published a final rule on January 22, 2001, that adopted standards that corresponded to Trial Standard Level 4 (the next higher level) and prescribed a minimum SEER of 13 for all the product classes, except for niche products, with

a corresponding 7.7 HSPF. While the preamble to (he fiTlal rule addressed the**Departmen~** ofJust"ce's specific

concerns al::Jut the proposed 12 SEER standards fc'**'~enlra** 1 air conditioners/13 SEER!?7**H~** PF st<.niard for central air conditionine heat l'ump systems (66 FR 7192-93). DUE' did n;)t have the benefit ofthe Departmlmt o,rJustice's views on the potential Jnti-com letitive impact of the final 13 SEEi"{ sta,ll ards for both air conditioners and heat I-umps. This is particularly ofCO!1cern ,n light of information in the TSD jndicating that standards at Trial**~tandard** Level 4 (uniform 13 SEER standards) could

cause several major manufacturers to consider selling their production assets rather than make the investment required to meet the new standard or face the loss ofprofits caused by the absence ofpremium products in the marketplace (see July 25 SNOPR at 38827). Therefore, DOE believes the Department ofJustice's views on the potential ofthe standards in the January 22 final rule to accelerate consolidation in the industry should have been obtained.

As part ofits review ofthe January 22 final rule pursuantto the President's Regulatory Review Plan, DOE on March 20, 2001, requested the views ofthe Department ofJustice on the 13 standards for central air conditioners and heat pumps. The Department of Justice's letter respondingto ourrequest is published in the Appendix to this notice. While some commenters were critical ofthe substance ofthe Department ofJustice's determinations about the anti-competitive impact of 13 SEER standards 

### (see Section VI below),

none ofthe comments disputed DOE's view that it shouldhave obtained the Department ofJustice's views on 13 SEER standards for both central air conditioners and heat pumps.

A second legal error that DOE considered in deciding to propose withdrawal ofthe January 22 final rule

was the absence ofany discussion of cumulative regulatory burden in the

## EE-RM/STD-98-440 -30-

36376 Federal Register/Vol. 67, No. 100/Thursday, May 23, 2002/Rules and Regulations

statement ofbasis and purpose for the fraction of consumers who would incur standard for split-system air January 22 final rule. One aspect ofthe significant life-cycle cost increases (25 conditioners, the most common type of
assessment ofmanufacturer burden percent and 34 percent ofaverage and residential air conditioning equipment, required by EPCA (42 U.S.C. low income consumers, respectively, at represents a 20percent improvement in 6295(o)(2)(B)(i)(I)) isthe cumulative 12 SEER versus 39percent and 50 energy efficiency. For split-system heat impact ofmultiple DOE standards and percent, respectively, at 13 SEER). pumps, the new standard represents a the regulatory actions of otherFederal DOE alsobased its decision to 20percent improvement in cooling agencies and States that affect the propose the withdrawal oftheJanuary efficiency and a 9 percent improvement manufacture ofacovered product. The 22 final rule on its conclusion that DOE, in heating efficiency. The standard will preamble to the January 22 final rule in determining whether 13 SEERwas increase the cooling efficiency ofsinglecontained an assertion that DOE economically justified, had not package air conditioners and singleconsidered cumulative burdens, but it adequately assessed the potential package heat pumps by 24 percent and did not discuss the magnitude ofthe regulatory burden and financial impacts the heating efficiency ofsingle-package burden orhowDOE took it into account on manufacturers ofcentral air heat pumps by 12 percent. DOE has in evaluating manufacturer impact (see conditioners and heat pumps. See July determined that the new standards are 66 FR 7174). In light ofthe evidence of 25 SNOPR at 38828-29. First, DOE the highest efficiency levels that are cumulative regulatory burdens on concluded that the cumulative technologically feasible and manufacturers documented in the TSD, regulatory burden on manufacturers was economically justified as re 1

### uired by DOE thinks the mere assertion that DOE not given sufficient weight in the law. considered the cumulative burdens on determination ofeconomic justification. DOE adopts somewhat lo ver manufacturers was not an adequate As discussed previously, the statement amended standards for thro E,h-the wall
statement ofbasis and purpose for ofbasis and purpose for the final rule central air conditioner and 1 

### sat pun p DOE's determination on manufacturer did not explain how DOE considered products to ensure that more Efficiernt impact resulting from a 13 SEER the cumulative impact on manufacturers versions remain available for tiis standard. SeeJuly 25 SNOPR at 38828. ofthe costs ofcomplying with various application. DOE establishes 10.9 SiER

Finally, as explained in DOE's new regulatory actions. DOE also and 7.1 HSPF as the standard for analysis ofEPCA's anti-backsliding concluded that inadequate through-the-wall split systems, and 10. provision, the effective date included in consideration was given in theJanuary SEER and 7.0 HSPF for through-the-wa 1 the January 22 final rule (i.e., the date 22 determination to theeffect of 13 single package systems. 30 days after the date ofpublication of SEER standards on industry net cash Finally, DOE creates a new class for the notice) was in direct conflict with flow andthe maldistribution of small duct, high velocity central air the CRA requirement that a majorrule regulatory burden on the two major conditioners and heat pumps. These may not take effect until the later of the types ofmanufacturers (66 FR 38829). products are designed for retrofit date occurring 60 days afterthe date DOE's tentative conclusions inthe applications and have special Congress receives the agency's report July 25 SNOPR about the appropriate requirements that make it unlikely they under 5U.S.C. 801 orthe date the rule weight to give to thebenefits and can meet the efficiency standards that is published in the Federal Register. 5 burdens of 13 SEER versus 12 SEER DOE today establishes for conventional U.S.C. 801(a)(3)(A)). standards, andthe resulting conclusion equipment. As discussed in Section VI,
B. PolicyIssues about which level iseconomically DOE received public comments that

DOE also based its decision to justified, were the subject ofextensive supported creation ofa separate class DOE also based its decson t January 22 public comment. These comments are for these products. While DOE includes propose withdrawal of he January 22 discussed in Section VI ofthis a definition of "small duct, high standards on itsreview ofthe analysis Supplementary Information, and the velocity system" in the final rule and stof benefits and burdens that analysis that supports DOE's creates a separate class for them, DOE 

### ofbenefits and burdens the January 22 determination that 12 SEERis the retains the NAECA prescribed standard deterination that 13 

### SEERis the maximum efficiency level that is levels for small duct, high velocity
maximum efficiency level that is technologically feasible and products in today's final rule because 

### technologically feasible and economicallyjustified is set forth in DOE has not yet conducted the analysis economically justified. As a result ofits Section VI. required to determine whether higher review ofthe January 22rule, DOE V. Amended Energy Conservation levels are technologically feasible and tentatively concluded that a 13 SEER Standards economically justified. DOE in the near standard was not economically justified, future intends to begin a rulemaking to and therefore DOEproposed to A. Overview determine ifahigher standard is and therefore DOE proposed to 

### withdraw theJanuary 22 final rule and The amended standards in today's warranted. proposed to adopt a 12 SEER standard rule take into account adecade of Several aspects oftoday's standards (66FR 38828-29). technological advancements and will warrant highlighting, as follows.

As explained in the July 25 SNOPR save consumers and the nation money, 1.Central Air Conditioner and Heat (66 FR 38828) DOEbelieved that in significant amounts ofenergy, and have Pum Features issuing the January 22 final rule, the substantial environmental and previous Administration had given economic benefits. When they go into The efficiency levels in today's final inadequate consideration to the fraction effect, the amended standards will raise rule canbe met by central air ofconsumers, and especially low the energy efficiency standards to 12 conditioner and heat pump designs that income consumers, who would incur SEER for new central air conditioners are already available in the market. DOE significant increases in life-cycle cost as and to 12 SEER/7.4 HSPF for new fullyexpects variations ofthese models

a result ofthe 13 SEER standard. DOE central air conditioning heat pumps. to existunder the new standards, decided to propose a 12 SEER standard, The standards will apply to products offering all the features and utility that instead of 13 SEER, because the analysis manufactured for sale in the United are found in currently available showed it would result in a lower States, as ofJanuary 23, 2006. The products. 

### EE-RM/STD·98-440**"'30~** 36376 

### Federal Register/Vol. 67, No. IOO/Thursday, May 23, 2002/Rules and Regulations

statementofbasis andpurpose for the January 22 final rule. One aspect ofthe assessment ofmanufacturerburden requiredby EPCA (42 U.S.C. 6295(0)(2)(B)(i)(I)) is the cumulative impact ofmultipleDOE standards and the regulatory actions ofother Federal agencies and States that affectthe manufacture ofa coveredproduct. The preamble to the January 22 final rule contained an assertionthat DOE considered cumulativeburdens, butit did not discuss themagnitude ofthe burden orhowDOE took itintoaccount inevaluating manufacturerimpact (see 

### 66 

### FR 7174). In

### light ofthe evidence of cumulative regulatory burdens on manufacturers documented inthe TSD, DOE thinksthe mere assertionthatDOE considered the cumulativeburdens on manufacturers was not an adequate statement ofbasis andpurposefor DOE's determination onmanufacturer impact resulting from a 13 SEER standard. See

### July 25 SNOPR at 38828.

Finally, as explained inDOE's analysis ofEPCA's anti-backsliding provision, the effective date included in theJanuary 22 final rule (i.e., 

### the date 30 days after the date ofpublication of the notice) was in direct conflict with the CRA requirementthat a major rule may nottake effect untilthe later ofthe date occurring 60 days after the date Congress receives the agency's report under 5 U.S.C. 801 orthe date therule is published in the Federal Register. 5 U.S.C. 801(a)(3)(A)).
B. PolicyIssues



### DOE also based its decision to proposewithdrawal oftheJanuary 22 final rule andto propose 12 SEER standards on its review ofthe analysis ofbenefits andburdensthat underpinned theJanuary 22 determinationthat 13 SEERisthe maximum efficiency level that is technologically feasible and economicallyjustified. As aresult ofits review oftheJanuary 22 rule, DOE tentatively concluded that a 13 SEER standard was not economicallyjustified, and therefore DOE proposedto withdraw theJanuary 22 final rule and proposedto adopta 12 SEER standard (66 FR 38828-29).

As explained intheJuly 25 SNOPR (66 

### FR 38828) DOE believedthat in issuingtheJanuary 22 final rule. the previous Administrationhad given inadequate consideration to thefraction ofconsumers. and especially low income consumers. whowouldincur significantincreases inlife-cycle cost as a result ofthe 13 SEER standard. DOE decided to propose a 12 SEER standard. instead of 13 SEER. becausethe analysis showed it would result in a lower fraction ofconsumers who wouldincur significant life-cycle cost increases (25 percent and 34 percentofaverage and low income consumers. respectively. at 12 SEER versus 39 percent and 50 percent. respectively. at 13 SEER).

DOE alsobased its decision to propose the withdrawal oftheJanuary 22 final rule on its conclusionthat DOE. in determining whether 13 SEER was economicallyjustified. had not adequately assessed thepotential regulatoryburden and financial impacts

onmanufacturers ofcentral air conditioners andheat pumps. See

### July 25 SNOPR at 38828-29. First. DOE concludedthat the cumulative regulatoryburden on manufacturers was notgiven sufficient weight in

### the determination ofeconomicjustification. As discussedpreviously. the statement ofbasis and purpose for the final rule did notexplain howDOE considered the cumulative impact on manufacturers ofthe costs ofcomplying withvarious

new regulatory actions. DOE also concludedthat inadequate considerationwas given intheJanuary 22 determination to theeffect of 13 SEER standards on industry net cash flow and themaldistribution of regulatory burden on thetwo major types ofmanufacturers (66 FR 38829).

DOE's tentative conclusions inthe July 25 SNOPR aboutthe appropriate weight to give to thebenefits and buraens of 13 SEER versus 12 SEER standards. andthe resulting conclusion about which level is economically justified, were the subject ofextensive publiccomment. Thesecomments are discussed in Section VI 

### ofthis Supplementary Information. andthe analysis that supports DOE's determinationthat 12 SEER is the maximum efficiency level that is technologically feasible and economicallyjustified is set forth in Section Vll.


# v. AmendedEnergy Conservation Standards
A. Overview



### The amended standards intoday's ruletake into accounta decade of technological advancements andwill

save consumers and the nationmoney, significant amounts ofenergy, and have substantial environmental and economicbenefits. When they go into effect. the amended standardswillraise the energy efficiency standardsto 12 SEER for new central air conditioners andto 12 SEER/7.4 HSPF for new central air conditioningheat pumps. The standards will apply to products manufactured for sale in the United States, as ofJanuary 23. 2006. The standard for split-system air conditioners. the most common type of residential air conditioning equipment. represents a 20 percent improvement in energy efficiency. For split-system heat pumps.the new standard represents a 20 percent improvement in cooling efficiency and a 9 percent improvement inheating efficiency. The standard will increasethe cooling efficiency ofsinglepackage air conditioners and singlepackage heat pumpsby 24 percent and the heating efficiency ofsingle-package heat pumpsby 12 percent. DOE has determined thatthe new standards are the highest efficiency levels that are technologically feasible and economicallyjustified as refuired by law.

DOE adopts somewhat 

### 10 ver amended standards for thro l,h-U.e· wall central air conditioner and 1

### 3at pun p products to ensure that morF Efficit'nt 

### versions remain available for tnis application. DOE establishes HI.9 Sltt:R and 7.1 HSPF as the standard fc.r through-the-wall split systems, and 10.) SEER and 7.0 HSPF for through-tne-waol single package systems.

.

Finally, DOE creates a new**clas~** 

### for small duct, high velocity central air conditioners andheatpumps. These products are designed for retrofit applications andhave special requirements that make it unlikely they

can meet the efficiency standards that DOE today establishes for conventional equipment. As discussed in Section 

### VI. DOE received public comments that supported creation ofa separate class for these products. While DOE includes

a definition of "small duct. high velocity system" inthe final rule and creates a separate class for them. DOE retains the NAECA prescribed standard levels for small duct. high velocity products in today's final rule because DOE has notyet conducted the analysis required to determine whetherhigher levels are technologically feasible and economicallyjustified. DOE inthe near future intends to begin a rulemaking to determine if

### a higher standard is warranted.

Several aspects oftoday's standard., warranthighlighting. as follows.
1. Central Air Conditioner and Heat PumpFeatures

The efficiency levels intoday's final rule can be metby central air conditioner and heat pump designs that
are already available inthe market. DOE fully expects variations ofthese models to existunderthe new standards. offering all the features and utilitythat

are found incurrently available products.

## EE-RM/STD-98-440. 3 0f

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2. Consumer Benefits central air conditioners and heat pumps. average consumer ofthe standards

Table 1 summarizes the Table 2presents the implications for the becoming effective in 2006. "characteristics" oftoday's typical

TABLE 1.-CHARACTERISTICS OF TODAY'S TYPICAL CENTRAL AIR CONDITIONERS AND HEAT PUMPS 1
Split system air Split system heat Single package Single package

conditioner pump air conditioner heat pump Average Installed Price

...................................... $2,236

................ $3,668

................ $2,607

................ $3,599 Annual Utility Bill2

.......................................... 189

..................... 453

..................... 189

..................... 453 Life Expectancy

............................................................................ 18.4 years

.......... 18.4 years

.......... 18.4 years

.......... 18.4 years Energy Consumption per year

.................................................... 2,305 kWh

.......... 6,549 kWh

.......... 2,305 kWh

.......... 6,549 kWh "Typical" equipment have cooling and heating efficiencies of 10 SEER and 6.8 HSPF, respectively. 2Utility bill pertains tothe energy cost of operating the air conditioner or heat pump.

TABLE 2.-IMPLICATIONS OF NEW STANDARDS FOR THE AVERAGE CONSUMER
Split system air Split system heat Single package Single package

conditioner pump air conditioner heat pump

Year Standard Comes into Effect

................................................. 2006

................... 2006

................... 2006

................... 2006 New Average Installed Price

........................................................ $2,449

................ $3,812

................ $2,765

................ $3,748 Estimated Price Increase

.............................................................. 213

..................... 144

..................... 158

..................... 149 A

nnual U tility Bill Savings

........................................................ 31

....................... 50

....................... 31

....................... 50 Average Net Saving over Equipment Life

.................................... 113

..................... 365

..................... 163

..................... 421 Energy Savings per Year

............................................................. 384 kWh

............. 768 kW h

............. 384 kWh

............. 768 kWh



### The most typical air conditioner (i.e., save money or would be negligibly reduced by the elimination of split system air conditioner which impacted as aresult ofthe 2006 approximately 80thousand metric tons comprises approximately 65 percent of standard.7 

### In the case ofa newtypical (kt)ofnitrous oxides (NOx) from 2006 today's central air conditioning and heat heat pump, all consumers either would through 2020. In total, DOE estimates pump market) has an installed price of save money orbe negligibly impacted. 8 

### this standard will have a net benefit to $2,236 and an annual utility costs of DOE also investigated how these the nation's consumers of$2billion $189. In order to meet the 2006 standards might affect low income over the period 2006 through 2030.9 

### standard, DOE estimates thatthe consumers. On average, DOE estimates B Stt Frm r installed price ofa typical air that it is likely that lowincome air B. StatutoryFrmework conditioner would be $2,449, an conditioner and heat pump consumers Part BofTitle III ofEPCA provides for increase of$213. 5 

### This price increase would also save money over the life of the Energy Conservation Program for wouldbe offset by an annual energy theequipment as a result ofthe Consumer Products other than savings ofabout $31 on the utilitybills. standard. Automobiles (42 U.S.C. 6291 etseq.). The most typical heat pump (i.e., split National Benefits The consumer products subject to this system heat pump) currently has an program include central air conditioners installed price of$3,668 and annual The standards in today's rule will and heat pumps. Underthe Act, the utility costs of$453. In order to meet the provide benefits tothe nation. DOE program consists essentially ofthree 2006 standard, DOE estimates that the estimates the standards will save parts: testing, labeling, and Federal installed price ofa typical heat pump approximately 3quads ofenergy over 25 energy conservation standards. would be $3,812, anincrease of$144.6 years (2006 through 2030). This is As previously stated, NAECA 

### This price increase wouldbe offsetby equivalent to all theenergy consumed prescribed initial Federal energy
an annual energy savings ofabout $50 by nearly 17 million American conservation standards for central air

on theutility bills. households in a single year. In 2020, the conditioners and heat pumps (42 U.S.C.

DOErecognizes that most consumers standards will avoid the construction of 6295(d)). NAECA further specified that pay energy prices that are higher or three 400 megawatt coal-fired plants DOE is to review and publish amended lowerthan the "typical" consumer and and nineteen 400megawatt gas-fired standards by January 1, 1994 (42 U.S.C. operate their equipment more or less plants. These energy savings would 6295(d)(3)(A)). UnderEPCA, any new or often. Consequently, DOE has result in cumulative greenhouse gas amended standard must be designed so investigated the effects ofthe different emission reductions ofapproximately as to achieve the maximum energy prices across the nation and 24 million metric tons (Mt) of carbon, or improvement in energy efficiency that is different air-conditioning usage an amount equal to that produced by technologically feasible and patterns. DOE estimates that 75 percent approximately 2million cars every year. economically justified (42 U.S.C. of all consumers purchasing a new Additionally, airpollution would be 6295(o)(2)(A)). typical air conditioner would either Section 325(o)(2)(B)(i) provides that Based on estimates supplied by ARI, 61 percent before DOE determines whether a s Based on estimates supplied by the industry of all consumers purchasing a new typical air standard is economically justified, it trade association, the Air-Conditioning and conditioner will either save money or will be o Refrigeration Institute (ARI), the installed price is negligibly impacted as a result of the 2006 standard. must first solicit comments on a estimated to be $2,510, an increase of$274. Based on estimates supplied by ARI, 97 percent Based on estimates supplied by ARI, the ofall consumers purchasing a new typical heat Net benefit assumes NAECA efficiency scenario. installed price is estimated tobe $3,933, an increase pump will either save money or will benegligibly Net benefit would be $3 billion for Roll-up of $265. impacted as a result ofthe 2006 standard. efficiency scenario. 

### EE·RM/STD·98-440_

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### Register/Vol. 67, No. IOO/Thursday, May**23~** 

### 2002/Rules and Regulations 36377

2. ConsumerBenefits

Table 1 summarizes the "characteristics" oftoday'stypical central airconditioners and heat pumps. average consumer ofthe standards Table 2 presents the implications for the becomingeffective in 2006.

TABLE 1.-CHARACTERISTICS OF TODAY'S TYPICAL CENTRAL AIR CONDITIONERS AND HEAT PUMPS 1
Split system air Split system heat Single package

conditioner pump air conditioner Single package heat pump
Average Installed Price

................................................................. $2.236

................ $3.668

................ $2.607

................ $3.599 Annual Utility BiII2

......................................................................... 189

..................... 453

..................... 189

..................... 453 Life Expectancy............................................................................ 18.4 years

.......... 18.4 years

.......... 18.4 years

.......... 18.4 years Energy Consumption per year

...................................................... 2.305 kWh

.......... 6.549 kWh

.......... 2.305 kWh

.......... 6.549 kWh

1 ''Typical'' equipment have cooling and heating efficiencies of 10 SEER and 6.8 HSPF. respectively.
2 Utility bill pertains to the energy cost of operating the air conditioner or heat pump.

TABLE 2.-IMPLICATIONS OF NEW STANDARDS FOR THE AVERAGE CONSUMER
Split system air Split system heat Single package

conditioner pump air conditioner Single package heat pump

Year Standard Comes into Effect

................................................. 2006

................... 2006

................... 2006

................... 2006 New Average Installed Price

........................................................ $2.449

................ $3.812

................ $2.765

................ $3.748 Estimated Price Increase

.............................................................. 213

..................... 144

..................... 158

..................... 149 Annual Utility Bill Savings

............................................................. 31

....................... 50

....................... 31

....................... 50 Average Net Saving over Equipment Life

.................................... 113...........

.......... 365........

............. 163..

................... 421 Energy Savings per Year

............................................................. 384 kWh

............. 768 kWh

............. 384 kWh

............. 768 kWh

The mosttypical air conditioner (i.e., split system air conditionerwhich comprises approximately 65 percent of today's central air conditioning and heat pump market) has an installed price of $2,236 and an annual utility costs of $189. In orderto meetthe 2006 standard,DOE estimatesthatthe installed price ofa typical air conditionerwouldbe $2,449, an increase of$213. 5 Thisprice increase wouldbe offset by an annual energy savings ofabout$31 ontheutilitybills. The mosttypical heat pump (i.e., split system heat pump) currently has an installed price of$3,668 and annual utilitycosts of$453. In orderto meetthe 2006 standard, DOE estimates thatthe installed price ofa typical heat pump wouldbe $3,812, anincrease of$144.6 Thispriceincrease wouldbe offset by

an annual energy savings ofabout $50

onthe utilitybills.

DOE recognizes that mostconsumers pay energy prices that are higher or lowerthan the "typical"consumer and operate their equipmentmore orless often. Consequently. DOE has investigatedthe effects ofthe different energy prices across the nation and different air-conditioningusage patterns. DOE estimates that 75 percent ofall consumers purchasinga new typical air conditioner wouldeither

• Based on estimates supplied bythe industry trade association. the Air-Conditioning and Refrigeration Institute (ARI). the installed price is estimatedto be $2.510. an increase of$274.

•Based on estimates supplied by ARI. the installed price is estimated to be $3.933. anincrease of$265. savemoney or wouldbe negligibly impacted as a result ofthe 2006 standard. 7 In the case ofa newtypical heatpump. all consumers either would

savemoney orbe negligibly impacted.s

DOE also investigatedhow tliese standards might affect low income

consumers. On average. DOE estimates that it is likely that low income air conditionerandheat pump consumers wouldalso save money overthe life of the equipment as a result ofthe standard.
3. National Benefits

The standards in today's rule will providebenefitstothe nation. DOE estimates the standards will save approximately 3 quads ofenergy over 25 years (2006 through 2030). Thisis equivalentto all theenergy consumed by nearly 17 millionAmerican households in a single year. In 2020. the standards will avoid the construction of three 400 megawatt coal-fired plants and nineteen 400megawatt gas-fired plants. These energy savings would result in cumulative greenhouse gas emissionreductions ofapproximately 24 millionmetrictons (Mt) ofcarbon. or
an amountequal tothat producedby approximately 2 millioncars every year. Additionally. airpollutionwouldbe

7Based onestimates suppliedbyARI. 61 percent ofall consumers purchasing a newtypical air conditionerwill either save money or will be negligibly impacted as a result ofthe 2006 standard.

•Based on estimates supplied by ARI. 97 percent ofall consumers purchasing a newtypical heat pump will either save money or will be negligibly impacted as a result ofthe 2006 standard. reducedby the elimination of approximately 80thousand metric tons (kt) ofnitrous oxides (NOx)from 2006 through 2020. In total, DOE estimates this standard will have a net benefitto the nation's consumers of$2 billion

overthe period 2006 through 2030. 9
B. StatutoryFramework

Part B ofTitle III ofEPCA provides for theEnergy Conservation Program for ConsumerProducts other than Automobiles (42 U.S.C. 6291 et seq.). The consumer products subject tothis program include central air conditioners and heatpumps. Underthe Act. the program consists essentially ofthree parts: testing. labeling, and Federal energy conservation standards.

As previously stated. NAECA prescribed initial Federal energy conservation standards for central air conditioners and heat pumps (42 U.S.C. 6295(d». NAECA further specified that DOE is to review and publish amended standardsby January 1. 1994 (42 U.S.C. 6295(d)(3)(A)). UnderEPCA. any new or amended standard mustbe designed so
as to achievethe maximum improvement in energy efficiency that is technologically feasible and economicallyjustified (42 U.S.C. 6295(o)(2)(A».

Section 325(0)(2)(B)(i) provides that before DOE determines whether a standard is economicallyjustified, it must first solicit comments on a

•Net benefit assumes NAECA efficiency scenario. Net benefit wouldbe $3 billion for Roll-up efficiency scenario.

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proposed standard (42 U.S.C. NOPR (65 FR 59593, 59612) andJanuary economically justified. This 6295(o)(2)(B)(i)). That section further 22 final rule (66 FR 7172), DOE presumption ofeconomic justification provides that, after reviewing the determined that 18 SEER isthe can berebutted upon aproper showing. comments, DOE must determine maximum technologically feasible level Using the reverse engineering whether thebenefits ofthe standard (Max Tech Level) for cooling efficiency manufacturing costs, the standards DOE exceed its burdens,based, tothe greatest for all product classes and capacities adopts today for split heat pumps and
extent practicable, on a weighing ofthe covered by this rulemaking. The Max packaged heat pumps canbe shown to following seven factors: Tech Level for heating efficiency is 9.4 have satisfied the rebuttable (i The economic impact ofthe standard on HSPF, which is the highest HSPF rating presumption requirements in section the manufacturers and on the consumers of currently available in residential heat 325(o)(2)(B)(iii).' 0 Therefore, DOE
the products subject to such standard; pumps. DOE's determinations of presumes thatthe standards adopted for

(ii) The savings in operating costs technological feasibility for central air split system and single package heat 

### throughout the estimated average lifeofthe conditioners and heat pumps have not pumps are economically justified. The covered product inthe type (or class) been disputed in the written and oral analysis, however, shows that split compared to any increase in the price of, or comments ofinterested persons in the system air conditioners and single in the initial charges for, or maintenance rulemaking. package air conditioners do not meet the
expenses of, the covered products which are standard for use ofthe rebuttable likely to result from the imposition ofthe 2. Economic Justification Factors presumption ofeconomic justification. standard; DOE has considered the seven Therefore, DOE does not presume them

(iii)The total projected amount ofenergy (ii) Thel total projected amount of energy statutory factors for determining to be economically justified. Ifthe imposition ofthe standard; whether a conservation standard is rebuttable presumption does not apply,

(iv) Any lessening ofthe utility or the economically justified. This section DOE must perform additional analysis performance ofthe covered products likely to briefly summarizes DOE's consideration to determine economic justification. As result from the imposition ofthe standard; ofthese factors. More detailed discussed in Section VII, DOE has



### (v) The impact of anylessening of consideration ofthese factors is performed an analysis for all classes of competition, as determined inwriting bythe provided inthe discussion ofcomments central air conditioner and heat pump Attorney General, that is likely toresult from in Section VI andthe discussion of products that shows the standards in the imposition ofthe standard; analytical results in Section VII ofthis today's rule are indeed economically

conservation n at on al and n er y Supplementary Information. justified. 

### (vii) Other factors the Secretary considers a.Economic Impact on Manufacturers c. Energy Savings relevant. and Consumers EPCA requires DOE, in determining

In addition, section 325(o)(2)(B)(iii) The record for this rulemaking the economic justification ofa standard, establishes a rebuttable presumption of contains several discussions ofthe to consider the total projected energy economic justification in instances economic impact on manufacturers and savings that are expected to result where the Secretary determines that consumers See 66 FR 7174-78, 7185- directly from revised standards. DOE "the additional costto the consumer of 7191, and 66 FR 38828-29, 38834-35. In forecasted energy savings through the purchasing a product complying with the July 25 SNOPR,DOE identified use ofa national energy savings (NES)

an energy conservation standard level deficiencies in the assessment of spreadsheet, as discussed in the October will be less than three times the value manufacturer and consumer impacts 5, 2000 NOPR (65 FR 59590, 59593). 

### ofthe energy * * * savings during the that was the basis for adoption ofthe DOE relies on the same spreadsheets first year that the consumer will receive January 22 final rule. Later sections of and assumptions for its estimate ofthe

as aresult ofthe standard, as calculated this Supplementary Information address NESthat would result from under the applicable test procedure the public comments received and implementation oftoday's standards.
* * *." (42 U.S.C. 6295(o)(2)(B)(iii)). DOE's conclusions on these subjects. As discussed in the October 5, 2000 

### The rebuttable presumption test is an NOPR, section 325(o)(3)(B) ofEPCA alternative path to establishing b. Life-Cycle Costs and Rebuttable prohibits DOE from adopting a standard
economic justification. Presumption for aproduct ifthat standard would not
C.Methodology Usedin DOE Analyses DOE considered life-cycle costs, as result in "significant" energy savings. discussed in theJanuary 22 final rule. The energy savings for the standard For this final rule, the methodologies 66 FR 7173, 7175, 7187-90. DOE levels DOE is adopting today are non

### used to evaluate the seven factors calculated the installed price and trivial-indeed they are substantialdescribed above are unchanged from operation and maintenance costs for a andtherefore we consider them those used in the analyses that DOE range ofconsumers around the nation to "significant" withinthe meaning of relied on for the October 5proposed estimate the range in life-cycle cost rule and the January 22 final rule. DOE's benefits that consumers would expect to 1oTo avoid confusion, DOE points outthat the methodology is discussed in the October receive due to new standards. DOE has statute requires DOE to use "the applicable test 5, 2000 NOPR (65 FR 59594-97) and the made no change in its assumptions and procedure" to calculate the payback periods for January 22 final rule (66 FR 7173-74). analyss oflif-cycle costs in making the the rbuttabl presumption. A 

### January 

## ~~~~~~~~analysis cofai 

### fe-cycle cstinmigth explained in the October 5, 2000 NOPR (65 FR 

### Additionally, the TSDthat accompanies determinations in today's notice offinal 59596). the annual cooling and heating energy this rulemaking provides a detailed rulemaking. consumption calculations based on DOE's test description ofevery aspect ofthe 

### Section 325(o)(2)(B)(iii) ofEPCA procedure are significantly greater than the 

### various analytical methodologies used. provides thatif,according to the weigha average values from DOE's life-cycle cost analyses based on the 1997 Residential Energy D. GeneralDiscussionofDOE's applicable test procedure, the increase Consumption Survey, used in other DOE analyses. Consideration ofStatutory Criteria in initial price ofan appliance due to a For this reason, the payback periods presented in conservation standard would repay Section VI of this portion ofthe preamble, entitled 1. 

### Technological Feasibility itselfto the consumer in energy savings "Analytical Results and Conclusions," are elfto the

consumer in energy savings significantly longer than those calculated to Pursuant to section 325(p)(2) ofEPCA, in less than three years, then DOE is to determine whether the rebuttable presumption and as discussed in the October 5, 2000 presume that such standard is applies to theseproducts. 

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proposed standard (42 U.S.C. 6295(0)(2)(B)(i)). That section further provides that. afterreviewing the comments. DOE must determine whetherthebenefits ofthe standard exceed its burdens.based. to thegreatest extent practicable. on a weighing ofthe following seven factors:

(i) The economic impact ofthe standard on the manufacturers and onthe consumers of the products subjectto such standard;

(ii) The savings in operating costs throughout the estimated average life ofthe covered product inthe type (or class) comparedto any increase intheprice of, or inthe initial charges for, or maintenance expenses of, the covered products which are likely to result from theimposition ofthe standard;

(iii) The total projected amount ofenergy savings likely toresult directly from the imposition ofthe standard;

(iv) Any lessening ofthe utility orthe performance ofthe covered products likely to result from the imposition ofthe standard;

(v) The impactofany lessening of competition. as determined inwritingby the Attorney General, that is likely to result from the imposition ofthe standard;

(vi) The need for national energy conservation; and

(vii) Other factors the Secretary considers relevant.



### In addition. section 325(0)(2)(B)(iii) establishes a rebuttable presumption of economicjustificationin instances where the Secretary determines that "theadditional costtothe consumer of purchasing a product complying with

an energy conservation standard level will be less than three times the value ofthe energy 

### * 

### * * savings during the first year that the consumerwill receive

as a result ofthe standard, as calculated underthe applicabletest procedure 

### * * *." 

### (42 U.S.c. 6295(0)(2)(B)(iii)). The rebuttable presumption test is an alternative pathto establishing economicjustification.
C. Methodology Used inDOEAnalyses



### Forthis final rule. the methodologies used to evaluate the seven factors described above are unchanged from those used inthe analyses thatDOE relied on for theOctober 5proposed rule andtheJanuary 22 final rule. DOE's methodology is discussed inthe October 5,2000NOPR (65 FR 59594-97) andthe January 22 final rule (66 FR 7173-74). Additionally. theTSD that accompanies this rulemaking provides a detailed description ofevery aspect ofthe various analytical methodologies used.
D. GeneralDiscussion of DOE's Consideration of StatutoI)' Criteria


### 1. Technological Feasibility

Pursuantto section 325(p)(2) ofEPCA, and as discussed inthe October 5. 2000 NOPR (65 FR 59593.59612) andJanuary 22 final rule (66 FR 7172). DOE determined that 18 SEER is the maximumtechnolOgically feasible level (Max TechLevel) for cooling efficiency for all productclasses and capacities coveredby this rulemaking. The Max TechLevel forheating efficiency is 9.4 HSPF. which is thehighest HSPFrating currently available in residential heat pumps. DOE's determinations of technological feasibility for central air conditioners andheat pumpshave not been disputed in thewritten and oral comments ofinterested persons in the rulemaking. 2. Economic Justification Factors

DOEhas consideredthe seven statutory factors for determining whether a conservation standard is economicallyjustified. This section briefly summarizes DOE's consideration ofthese factors. More detailed consideration ofthese factors is provided inthe discussion ofcomments in Section VI andthe discussion of analytical results in Section VII ofthis Supplementary Information.

a. Economic Impact on Manufacturers and Consumers

The record for this rulemaking contains several discussions ofthe economic impact on manufacturers and

consumers See 

### 66 FR 7174-78.7185- 7191, and 66 FR 38828-29.38834-35. In the July 25 SNOPR. DOE identified deficiencies inthe assessment of manufacturer and consumerimpacts that was the basis for adoption ofthe January 22 final rule. Later sections of this Supplementary Information address the public comments received and DOE's conclusions on these subjects. b. Life-Cycle Costs and Rebuttable Presumption

DOE considered life-cycle costs, as discussed intheJanuary 22 fmal rule. 66 FR 7173.7175.7187-90. DOE calculatedthe installedprice and operation and maintenance costs for a range ofconsumers aroundthenationto estimate the range in life-cycle cost benefits that consumers wouldexpectto receive dueto new standards. DOE has made no change inits assumptions and analysis oflife-cycle costs inmakingthe determinations intoday's notice offinal rulemaking.

Section 325(0)(2)(B)(iii) ofEPCA provides that if. accordingto the applicable testprocedure. the increase ininitial price ofanappliance dueto a conservation standard wouldrepay itselfto the consumer inenergy savings in less thanthree years. then DOE is to presumethat such standard is economicallyjustified. This presumption ofeconomicjustification

can be rebutted upon aproper showing.

Usingthe reverse engmeering manufacturing costs, the standards DOE adopts today for split heat pumps and packaged heat pumps canbe shownto have satisfied the rebuttable presumptionrequirements in section 325(0)(2)(B)(iii).10 Therefore. DOE presumes thatthe standards adopted for split system and single package heat pumps are economicallyjustified. The analysis. however. shows that split system air conditioners and single package air conditioners do notmeet the standard for use ofthe rebuttable presumption ofeconomicjustification. Therefore. DOE does not presume them to be economicallyjustified. If

### the rebuttable presumption does not apply. DOE must perform additional analysis to determine economicjustification. As discussed in Section VII, DOE has performed an analysis for all classes of central air conditioner andheat pump products that showsthe standards in today's rule are indeed economically justified.

c. Energy Savings

EPCA requires DOE, in determining the economicjustification ofa standard, to considerthe total projected energy savings that are expectedtoresult directly from revised standards. DOE forecasted energy savings through the

use ofa national energy savings (NES) spreadsheet. as discussed in the October 5,2000NOPR (65 FR 59590, 59593). DOE relies on the same spreadsheets and assumptions for its estimate ofthe NES that would result from implementation oftoday's standards.

As discussed inthe October 5, 2000 NOPR, section 325(0)(3)(B) ofEPCA prohibits DOE from adopting a standard for a productifthat standardwould not result in "significant" energy savings. The energy savings for the standard levels DOE is adopting today are nontrivial-indeedthey are substantialandtherefore we considerthem "significant" withinthe meaning of

10To avoid confusion, DOE points out that the statute requires DOE to use "the applicable test procedure" to calculate the payback periods for purposes ofthe rebuttable presumption. As explained inthe October 5, 2000 NOPR (65 FR 59596). the annual cooling and heating energy consumption calculations based on DOE's test procedure are significantly greater than the weighted-average values from DOE's life·cycle cost analyses based on the 1997 Residential Energy Consumption Survey, used in otherDOE analyses. For this reason, the payback periods presented in SectionVII ofthis portion ofthe preamble, entitled "Analytical Results andConclusions," are significantly longer thanthose calculated to determine whetherthe rebuttable presumption applies to these products.

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section 325 ofthe Act as construed by final rule still presented anti- g. Other Factors the court inNaturalResourcesDefense competitive concerns. More specifically, n ) f A all th Councilv. Herrington,768 F.2d 1355 the Department ofJustice concluded ect o n 

### 3 o o (D.C. Cir. 1985). that while the final rule's exclusion of Secretary ofEnergy, in determining d Lseing

ofUtiy orPe of niche products might alleviate whether a standard is economically d. Lessening of Utility orPerformance of competitive problems for manufacturers justified, to consider any other factors Products ofthose products, the Department of that the Secretary deems to be relevant



### This factor cannot bequantified. In Justice remained concerned about the (42 U.S.C. 6295(o)(2)(B)(i)(VI)). Under establishing classes ofproducts, DOE impact ofthe final rule on this provision, DOE considered the has attempted to eliminate any manufacturers ofstandard equipment potential improvement to the reliability degradation ofutility or performance in who could not make 13 SEER ofthe electrical system and health the products covered by today's rule. equipment that would fit into space- effects caused by foregone air Attributes that affect utilityinclude the constrained sites. TheDepartment of conditioner purchases. These issues are product's ability to cool and Justice also concluded theJanuary 22 discussed in the October 5, 2000 NOPR dehumidify. In some applications, noise final rule would have a disproportionate (65 FR 59605); the January 22 final rule levels may also be an aspect of utility. impact on smaller manufacturers of heat (66 FR 7195); and in the Discussion of Product size or configuration can alsobe pumps. Finally, the Department of Comments that follows. TheUtility considered utility ifa change in size Justice was ofthe view that the 13 SEER Impacts Analysis in Chapter 11 ofthe would cause the consumer to install the standard for air conditioners presents TSD describes the technical analysis product in a location or in a manner the same kinds ofanti-competitive used in estimating the effects of inconsistent with the consumer's problems as the 13 SEER standard for adopting new efficiency standards on preferences. The separate treatment of heat pumps, and urged DOE to adopt a installed generation capacity. As will be through-the-wall products and small 12 SEER standard for all products described in theDiscussion of duct, high velocity systems in today's covered by the rule. Comments, the Utility Impacts Analysis rule isbased in part on utility and DOE submitted theJuly 25, 2001, hasbeen revised. Updated results are performance considerations. supplemental proposed rule tothe provided inAppendix M ofthe TSD.

e. Impact ofLessening ofCompetition Department of ustice for comment. The VI. Discussion ofCo ents Assistant Attorney General, Antitrust This economic justification factor has Division, responded in a letter dated A. Impacton Consumers two aspects: On the one hand, it October 19, 2001, (seeAppendix to this T r assumes that there could be some notice) that the Department ofJustice The record for this rulemaking lessening of competition as aresult of had concluded thatthe proposed 12 includes numerous discussions ofthe standards; on the otherhand, it directs SEER standards would not adversely distributions, extent, and type of the Attorney General to gauge the affect competition. This factor is burdens on thetypical consumer aswell impact, ifany, ofthat effect and DOE discussed further in Section VI.E ofthis as on low-income consumers. See 65 FR must consider the Attorney General's Supplementary Information. 59623-59624, 66 FR 7189-7190, and 66 views in determining whether an FR 38834. In the January 22 notice of efficiency level is economically f. Need ofthe Nation To Conserve final rulemaking, DOE determined that justified. Energy most consumers, including low-income

In order to assist theAttorney General DOErecognizes thatenergy consumers, would likely benefit in making such a determination, DOE conservation benefits the nation in financially over the life ofthe provided the Attorney General with several important ways. Enhanced equipment, butthat all consumers copies ofthe October 5, 2000, NOPR energy efficiency improves the nation's wouldbear higher initial costs, and and the TSD for review. TheAttorney energy security, strengthens the many consumers, though not the General's determination, in aletter economy, andreduces the majority, would never recover the dated December 4, 2000, was discussed environmental impacts ofenergy higher first costs in the form ofsavings in the preamble to the January 22 final production. Aspart ofthe analysis in their utility bills. However, the rule. 66 FR 7176, 7199-200. The supportingtoday's rule, DOE estimated previous Administration concluded that Attorney General's December 4, 2000, energy savings and the national the national energy savings and the determination is included in the consumerbenefits and estimated slight financial benefit to the typical Appendix to this notice offinal reduction in emissions ofpollutants and consumer overrode any negative and rulemaking. greenhouse gases resulting from those maldistributed consumer impacts. Upon

During the review conductedenergy savings. See theOctober 5,2000 review undertaken in conjunction with pursuant to the President's Regulatory NOPR for a qualitative discussion of President Bush's Regulatory Review Review Plan, DOE invited the Attorney how these standards affect energy Plan, DOE focused on analytical results General to submit supplemental views savings and those benefits. 65 FR showing thatthe benefits ofthe

on theJanuary 22 final rule. The 59622-3. The amount ofenergy savings standards adopted in the January 22 Department ofJustice, in a letter dated ultimately associated with a particular final rule would accrueto a much April 5,2001, provided comments on standard level is also affected by the smaller fraction of consumers, whether thefinal rule effectively effect ofa given standard on particularly low-income consumers, removed itsconcerns regarding possible competition and consumer cost. than is the case for recent standards for lessening ofcompetition that could Selecting a standard level should take otherproducts. Therefore, DOE sought result fromthe October 5 proposed into account manufacturer-and to mitigate those burdens by proposing standards. TheDepartment ofJustice's therefore inevitably consumer-costs, in on July 25 a 12 SEER standard, which April 5, 2001, letteris also included in order to encourage robust competition would reduce the increase in equipment theAppendix to this notice. The and heightened introduction of newer, cost compared to the 13 SEER Department ofJustice concluded that more efficient units into the inventory requirements issued on January 22. See the 13 SEER standards forheat pumps ofunits available for purchase and use July 25 SNOPR, 66 FR 38828, 38834. and air conditioners in the January 22 by consumers. DOE received extensive public 

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### 36379

section 325 ofthe Act as construedby the court inNaturalResourcesDefense Council

### v. Herrington, 

### 768 F.2d 1355 (D.C. Cir. 1985). d. Lessening ofUtility orPerformance of Products

This factor cannotbe quantified. In establishingclasses ofproducts, DOE has attempted to eliminate any degradation ofutility orperformance in theproducts coveredbytoday's rule. Attributes that affect utility includethe product's ability to cool and dehumidify. In some applications, noise levels may also be an aspect ofutility. Product size orconfiguration can also be considered utility ifa change in size would causethe consumerto install the product in a location orin a manner inconsistent withthe consumer's preferences. The separatetreatment of through-the-wall products and small duct, high velocity systems in today's rule is based inpart onutility and performance considerations.

e. Impact ofLessening ofCompetition

This economicjustification factor has two aspects: On the onehand, it

assumes thatthere couldbe some lessening ofcompetition as a result of standards; on the otherhand, it directs theAttorney General to gauge the impact, ifany, ofthateffect and DOE must considerthe Attorney General's views indeterminingwhether an efficiency level is economically justified.

In orderto assist theAttorney General inmaking such a determination, DOE provided the Attorney General with copies ofthe October 5, 2000, NOPR andtheTSD for review. TheAttorney General's determination, in a letter dated December 4, 2000, was discussed inthe preamble to theJanuary 22 final rule. 66 FR 7176,**719~200.** 

### The Attorney General's December 4,2000, determination is includedinthe Appendixtothis notice offinal rulemaking.

Duringthe review conducted pursuantto the President's Regulatory Review Plan, DOE invitedthe Attorney General to submit supplemental views

on theJanuary 22 final rule. The DepartmentofJustice, in a letter dated April 5, 2001, provided comments on whether thefinal rule effectively removed its concernsregarding possible lessening ofcompetitionthatcould result from the October 5 proposed standards. TheDepartment ofJustice's April 5, 2001,letteris also includedin theAppendixtothis notice. The Department ofJustice concludedthat the 13 SEER standards for heat pumps and air conditioners intheJanuary 22 final rule still presented anticompetitive concerns. More specifically, the DepartmentofJustice concluded that whilethe final rule's exclusion of niche productsmight alleviate competitive problems for manufacturers ofthose products, theDepartment of Justice remained concerned aboutthe impact ofthe final rule on manufacturers ofstandard equipment who couldnotmake 13 SEER equipmentthat would fit into spaceconstrained sites. TheDepartment of Justice also concludedtheJanuary 22 final rule wouldhavea disproportionate impact on smallermanufacturers ofheat pumps. Finally,theDepartment of Justice was ofthe view thatthe 13 SEER standard for air conditioners presents the same kinds ofanti-competitive problems as the 13 SEER standard for heat pumps, and urged DOE to adopt a 12 SEER standard for all products coveredbytherule.

DOE submittedtheJuly 25, 2001, supplementalproposed rule to the Department ofJustice for comment. The Assistant Attorney General, Antitrust Division, responded in a letter dated October 19, 2001, (see 

### Appendixto this notice) that the Department ofJustice had concludedthat the proposed 12 SEER standards would not adversely affect competition. This factor is discussed further in SectionVI.E ofthis SupplementaryInformation. f. Need ofthe Nation To Conserve Energy



### DOE recognizes that energy conservationbenefits the nation in several important ways. Enhanced energy efficiency improves thenation's energy security, strengthensthe economy, andreduces the environmental impacts ofenergy production. As part ofthe analysis supportingtoday's rule, DOE estimated energy savings andthe national

consumerbenefits andestimated reductioninemissions ofpollutants and greenhousegases resulting from those energy savings. Seethe October 5, 2000 NOPR for a qualitative discussion of howthese standards affect energy savings andthosebenefits. 65 FR 59622-3. The amount ofenergy savings ultimately associated with a particular standard level is also affected bythe effect ofa given standard on competition andconsumercost. Selecting a standard level shouldtake into account manufacturer-and therefore inevitably consumer-costs, in orderto encourage robust competition andheightened introduction ofnewer, more efficientunits into the inventory ofunits available for purchase anduse by consumers. g. OtherFactors
Section 325(0) ofEPCA allows the Secretary ofEnergy, in determining whether a standard is economically justified, to consider any other factors thatthe Secretary deems to be relevant (42 U.S.C. 6295(0)(2)(B)(i)(VI)). Under this provision, DOE considered the potential improvementto the reliability ofthe electrical system andhealth effects causedbyforegone air conditioner purchases. These issues are discussed in the October 5, 2000 NOPR (65 FR 59605); the January 22 final rule (66 FR 7195); and inthe Discussion of Comments that follows. The Utility Impacts Analysis in Chapter 11 ofthe TSD describes thetechnical analysis used in estimatingthe effects of adopting newefficiency standards on installed generation capacity. As will be described in theDiscussion of Comments, the Utility Impacts Analysis has beenrevised. Updated results are provided inAppendixM ofthe TSD.
VI. Discussion ofComments 

### A. Impact on Consumers



### The record for this rulemaking includes numerous discussions ofthe distributions, extent, andtype of burdens onthetypical consumer as well

as on low-income consumers. See 

### 65 FR 59623-59624,66FR 7189-7190, and 66 FR 38834. In theJanuary 22 notice of final rulemaking, DOE determined that mostconsumers, including low-income consumers, would likely benefit financially over the life ofthe equipment, butthat all consumers wouldbearhigher initial costs, and many consumers, though not the majority, would neverrecover the higher first costs inthe form ofsavings intheirutilitybills. However, the previous Administration concluded that the national energy savings andthe slight financial benefit to the typical

consumer overrode any negative and maldistributed consumer impacts. Upon review undertaken inconjunction with President Bush's Regulatory Review Plan, DOE focused onanalytical results showingthatthebenefits ofthe standards adopted intheJanuary 22 final rule wouldaccrue to a much smallerfraction ofconsumers, particularly low-income consumers, than is the case for recent standards for other products. Therefore, DOE sought to mitigate thoseburdensby proposing

on July 25 a 12 SEER standard, which would reduce theincrease inequipment cost compared to the 13 SEER requirements issued onJanuary 22. See 

### July 25 SNOPR, 66 FR 38828, 38834. DOE received extensive public

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comments on this subject in response to prohibitive expense at any efficiency literature provides expressions for the July 25 SNOPR. level. (OOE, No. 275 atpp. 4-5; determining the renter and landlord 1. 

### Low-Income CGoodman,No. 269 atp. 4; National pass-through-fractions as a function of 1. Low-Income ConsumersGrid, No. 241-00 at p. 2; Texas ROSE, elasticities for long-run housing supply As stated in the July 25 SNOPR, DOE No. 241-SS at pp. 12-16). and demand. Therenter pass-throughis particularly concerned that new Countering the above comments, York fraction defines that portion of a standards be designed to distribute their International (York), Trane Company landlord's investment cost (such as the burdens and benefits as fairly as and American Standard Heating and Air cost associated with more efficient airpractical. Although some disparity is Conditioning (Trane), Southern conditioning equipment) that gets expected in any national standard, the Company, ARI, Edison Electric Institute passed through to the renter in the form disparity in impacts between low- (EEI), Rheem Manufacturing (Rheem), ofan increased rental price. The renter income and typical consumers is of Carrier Corporation (Carrier), and pass-through-fraction is defined by the greater concern atmore stringent George Mason University Mercatus following expression: efficiency standards because increases Center (Mercatus Center) all argued that Where, in first cost and increases in life cycle theincreased cost ofmore efficient aircosts are felt more sharply by lower conditioning equipment cannotbe es 

### income consumers. afforded by those consumers living on Pass-thru-FractionRnter = -

Many advocates ofa 13 SEER fixed or low incomes. Forthose low- e ed standard argued that because a majority income consumers that are elderly or of es =elasticity oflong-run housing oflow-income central air conditioner ill-health, Carrier and Mercatus Center supply and and heat pump consumers are renters, stated that the increased first cost ed = elasticity oflong-run housing
most would not bear the first cost associated with more efficient demand. increases associated with more efficient equipment could cause these consumers The landlord pass-through-fraction equipment. These comments asserted to forego the purchase ofnew defines that portion ofa renter's benefit thatlandlords would have to absorb any equipment leading to potential adverse dueto a landlord's investment (such as first cost increase because rental prices health effects for this sub-population. utility bill savings associated with more

are dictated by housingavailability, real Withregard to low-income renters, both efficient air-conditioning equipment)
estate prices, and anumber ofother Trane and Southern Company that get passedback through to the market forces as opposed to first cost maintained thatlandlords will pass on landlord in the form ofan increased increases in any single appliance. The thehigher first costs associated with rental price. The landlord pass-throughcomments also asserted that because more efficient equipment to renters. fraction is defined bythe following landlords typically purchase the least Southern Company elaborated by stating expression: expensive, and inturn, the least the "renters get it free" argument only efficient equipment, stringent efficiency has validity inthe very short-term. In Passhru-Fraction o = e d 

### standards are one ofthe few options the long term, higher costs experienced O 

### e- ed provided to renters to protect them from by landlords will inevitably result in The existing literature provides arange unduly high energy bills. (ACEEE, No. higher costs to their tenants. Southern ofelasticities for long-run housing 284 at p. 3; Appliance Standards Company asserts that DOE would be supply (0.3 to 0.7) and demand (-0.1 to Awareness Project (ASAP), No. 244 at better served looking at cost- -1.0). The literature suggests that there pp. 1-2; Austin Energy, No. 243 at p. 2; effectiveness from a direct-cost, societal will always be some form ofrenter passConsumer Federation ofAmerica (CFA), viewpoint, and avoid speculating on though but not necessarily some form of No. 246 at p. 2; NEEP, No. 273 at p. 3; changes in landlord profit margins landlord pass-through. As aresult, the State ofVermont, No. 268 at p. 3; decades from now. (York, No. 270 at pp. minimum and maximum pass-throughGoodman Global Holdings (Goodman), 2-3; Trane, No. 262 atpp. 4-5; Southernfractions are 23 

### percent and 121 

### No. 269 at p. 4; ASE, No. 282 at p. 4; Company, No. 257 at p. 2; ARI, No. 259 percent respectively, ofa landlord's California Energy Commission (CEC), atp. 2; EEI



### ,No. 253 at p. 4; Rheem, No. investment cost. As shown above, the No. 263 at p. 2; NRDC, No. 250 at pp. 248 at p. 2; Carrier, No. 280 at p. 2; literature suggests that it is possible that 17-18; Environmental Ministries of Mercatus Center, No. 242 at p. 11). some landlords will not be able to pass Southern California, No. 263 at p. 4; DOEbelieves roughly halfoflow on all investment costs while other Texas Ratepayers' Organization to Save income households arerenters. The landlds m actually pass on more Energy (Texas ROSE), No. 241-SS at pp. 1997 Residential Energy Consumption than 100 percent ofthese costs. Tose 15-16; National Consumer Law Center Survey (RECS) that was used as the landlor o are unae to passonall (NCLC), No. 241-NN at p. 1; Texas basis for determining the impacts of fthese added costs will, ofcourse, be Natural Resource Conservation increased efficiency standards on adversel affected ys this rulemaking Commission (TNRCC), No. 286 at pp. 1 -households estimates that 49.8 percent unless they are directly responsible for 2; American Geothermal DX, No. 241- oflow-income households with central the utility bills asociated with air HH at p. 1; EPA, No. 276 at p. 5). air-conditioners orheat pumps are conditioning use, although their renters Goodman, Oregon Office ofEnergy renters. What is at issue is theextent to aemuch more likely to benefit s (OOE), National Grid, and Texas ROSE which increased equipment costs will Landlords that wouldbe adversely stated that low-income consumers in be borneby occupants ofthese general would benefit from stringent households or by the building owners. landlord pass-through fractions as afunction of efficiency standards. Goodman argued DOE examined existing literature on elasticities for long-rim housing supply and that any first cost increase would be the economics ofrental markets to demand. Typical supply elasticitiescan be found in made up through lower energy bills, determine whether any previous Pindykck, R.andD. Rubinfeld. Microeconomics, while Texas ROSE asserted that the analyses might help resolve the 2001, Prentice Hall (citing de Leeuw, F.and N. stringency ofthe efficiency standard is 

### dsgemnsothsEkanen. "The Supply ofRental Housing", AER. Vol. stringency of the efficiency standard is disagreements on this issue." The 61,1971, pp 80817).Typical demand elasticities immaterial as most low-income _______can be found in Hanushek, E.A. and J.M. Quigley, households would find buying a new 11 Pindykck. R. andD.Rubinfeld, Microeconomic "The Determinants ofHousing Demand", Research central air conditioning unit a Theory, 2001, provides equations for renter and in Urban Economics. Vol. 2,1982, pp. 221-242. 

### 36380 

## EE·RM/STD-98-44Q...**3o~** Federal Register/Vol. 67, No. lOO/Thursday, May 23, 2002/Rules and Regulations

comments onthis subject inresponse to theJuly 25 SNOPR. 1. Low-Income Consumers

As stated intheJuly 25 SNOPR, DOE is particularlyconcernedthatnew standardsbe designedto distribute their burdens andbenefits as fairly as practical. Although some disparity is expected inany national standard, the disparity in impactsbetween lowincome andtypical consumers is of greater concernat more stringent efficiency standardsbecauseincreases infirst cost andincreases in life cycle costs are felt more sharplyby lower income consumers.

Many advocates ofa 13 SEER standard argued thatbecause a majority oflow-income central air conditioner andheat pump consumers are renters, most would notbearthe first cost increases associated with more efficient equipment. These comments asserted that landlords wouldhaveto absorb any first cost increasebecauserental prices

are dictatedbyhousing availability, real estate prices, and a number ofother market forces as opposedto first cost increases in any single appliance. The comments also assertedthatbecause landlordstypically purchasethe least expensive, andintum,the least efficient equipment, stringent efficiency standards are one ofthe few options provided to renters to protect them from undulyhigh energy bills. (ACEEE, No. 284 at p. 3; Appliance Standards Awareness Project (ASAP), No. 244 at pp. 1-2;Austin Energy, No. 243 at p. 2; Consumer Federation ofAmerica (CFA), No. 246 at p. 2; NEEP, No. 273 at p. 3; State ofVermont, No. 268 at p. 3; Goodman Global Holdings (Goodman), No. 269 at p. 4; ASE, No. 282 at p. 4; CaliforniaEnergy Commission (CEC), No. 263 at p. 2; NRDC, No. 250 at pp. 17-18;Environmental Ministries of Southern California, No. 263 atp. 4; Texas Ratepayers' Organizationto Save Energy (Texas ROSE), No. 241-SS at pp. 15-16;National ConsumerLaw Center (NCLC), No. 241-NN atp. 1; Texas Natural Resource Conservation Commission (TNRCC), No. 286 at pp. 1- 2; American Geothermal OX, No. 241- HH at p. 1; EPA, No. 276 atp. 5). Goodman, Oregon Office ofEnergy (ODE), 

### National Grid, andTexas ROSE statedthat low-income consumers in general wouldbenefitfrom stringent efficiency standards. Goodman argued thatany first cost increase wouldbe made upthrough lower energybills, while Texas ROSE asserted thatthe stringency ofthe efficiency standard is immaterial as mostlow-income households would find buying a new central air conditioningunit a prohibitiveexpense at any efficiency level. (OOE, No. 275 at pp. 4-5; Goodman, No. 269 atp. 4; National Grid, No. 241-00atp. 2; Texas ROSE, No. 241-8S at pp. 12-16).

Countering the above comments, York International (York), Trane Company andAmerican Standard Heating and Air Conditioning (Trane), Southern Company, ARI, Edison Electric Institute (EEn. Rheem Manufacturing (Rheem), CarrierCorporation (Carrier), and George Mason University Mercatus Center (Mercatus Center) all argued that the increased cost ofmore efficient airconditioning equipment cannotbe afforded by those consumers living on fixed orlow incomes. Forthose lowincome consumers that are elderly or of ill-health, Carrier andMercatus Center statedthat the increased first cost associated with more efficient equipment could causethese consumers to forego the purchase ofnew equipment leading to potential adverse health effects for this sub-population. Withregardto low-income renters, both Trane and Southern Company maintained that landlords will pass on thehigherfirst costs associated with

more efficient equipmentto renters. Southern Company elaboratedby stating the "renters get it free" argument only has validity inthe very short-term. In thelong term, higher costs experienced by landlords will inevitablyresult in higher costs to theirtenants. Southern Company asserts thatDOE wouldbe better served looking at costeffectiveness from a direct-cost, societal viewpoint, andavoid speculating on changes inlandlord profit margins decades from now. (York, No. 270 at pp. 2-3; Trane, No. 262 atpp. 4-5; Southern Company, No. 257 atp. 2; ARI, No. 259 atp. 2; EEl, No. 253 atp. 4; Rheem, No. 248 atp. 2; Carrier, No. 280 at p. 2; Mercatus Center, No. 242 atp. 11).

DOEbelievesroughly half oflow incomehouseholds are renters. The 1997 Residential Energy Consumption Survey (RECS) that was used as the basis for determiningthe impacts of increased efficiency standards on households estimates that 49.8 percent oflow-incomehouseholds with central air-conditioners orheatpumps are renters. What is atissueis the extentto which increasedequipment costs will beborneby occupants ofthese households orbythebuildingowners.

DOE examined existing literature on the economics ofrental markets to determine whether anyprevious analyses mighthelp resolve the disagreements on this issue. ll 

### The

11Pindykck. R. andD. Rubinfeld. Microeconomic Theory, 2001, provides equations for renter and 

### literature provides expressions for determiningthe renter and landlord pass-through-fractions as a function of elasticities for long-run housing supply and demand. The renterpass-throughfraction defines thatportion ofa landlord's investment cost (such as the cost associated with more efficient airconditioningequipment) that gets passed throughto therenter in the form ofan increased rental price. The renter pass-through-fraction is defined by the following expression:

Where,

hru F · 

### es

Pass-t

- ractlOnRenier 

## =-- es-ed


### e. =

### elasticity oflong-run housing supply and ed 

## =elasticity oflong-run housing demand. The landlord pass-through-fraction defines that portion ofa renter's benefit due to a landlord's investment (such as utilitybill savings associated with more efficient air-conditioning equipment) that get passedbackthrough to the landlord in the form ofan increased rental price. The landlord pass-throughfraction is defined bythe following expression:

. -ed 

### Pass-thru-FractlonLandlord =-- es-ed 

### The existing literatureprovides a range ofelasticities for long-run housing supply (0.3 to 0.7) and demand (- 0.1 to -1.0). The literature suggests that there will always be some form ofrenter passthoughbutnotnecessarily some form of landlord pass-through. As a result, the minimum and maximum pass-throughfractions are 23 percent and 121 percent, respectively, ofa landlord's investment cost. As shown above, the literature suggests that it is possible that

some landlordswill notbe able to pass
on all investmentcosts, while other landlords may actually pass on more than 100 percent ofthese costs. Those landlords who are unable to pass on all ofthese added costs will, ofcourse, be adversely affected bythis rulemaking (unless they are directly responsible for the utilitybills associated with air conditioninguse), although theirrenters
are much more likely to benefit. Landlords thatwouldbe adversely

landlord pass-throughfractions as a function of elasticities for long-run housing supply and demand. Typical supplyelasticities canbe found in Pindykck. R. and D. Rubinfeld. Microeconomics. 2001. Prentice Hall (citing de Leeuw. F. and N. Ekanen. "The Supply ofRental Housing". AER. Vol. 61.1971. pp. 806-817). Typical demand elasticities

can be found inHanushek. E.A. and J.M. Quigley. "TheDeterminants ofHousing Demand". Research in Urban Economics. Vol. 2. 1982. pp. 221-242.

## EE-RM/STD-98-440- 304

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affected may be more likely to seek Cooperative Association (NRECA), No. contracts entered into by California to alternatives, such as small capacity 278 at pp. 1-2; Environmental guarantee electricity supplies in the units or even delayed replacement of Ministries of Southern California, No. State. Increased competition in failed units. Those landlords that pass 236 at pp. 2-3; Texas ROSE, No. 241- electricity markets is also represented

on more than 100 percent ofthe costs SS at pp. 7-8; NCLC, No. 255 at pp. 2- through changes in the financial ofnew equipment could benefit from 4; Northwest Power Planning Council structure of the industry and efficiency efficiency standards, but their renters (NWPPC), No. 287 at pp. 1-3; and operating improvement. The impact

are much more likely to be adversely Environmental Protection Agency ofEIA's assumptions are evidenced affected. Since no study could be found (EPA), No. 276 at p. 4). Some comments from the average residential electricity that addressed the specific population further argue that the costs ofelectricity price estimated by AEO2002 forthe year ofrenters likely to be affected by this price increases due to air-conditioning 2001. The average rate estimated by rulemaking, DOE believes there is are passed, in the form ofhigher rates, AE02002 for 2001 is 4.2 percent greater insufficient basis to change its analytical onto all consumers for all end uses, (or 0.3 ¢/kWh) than that estimated by methods or conclusions regarding the regardless ofthe importance oftheir role the AEO2000. Although the AEO2002 likely effects ofcentral air conditioner in creating the price increase. Thus, short-term projections have taken into and heat pump standards on low- DOE's analysis should account for how account recent events, EIA estimates income renters. lower air-conditioning consumption that long-term volatility in energy 2.

EctricityPr-ices lowers electricity bills for all consumers markets will not occur from recent 2 y and not only those that utilize air events or from the impacts of such In proposing a 12 SEER standard in conditioners. (NEEP, No. 273 at pp. 2- future events as supply disruptions or the Ju'y 25 SNOPR, DOE stated that a 3; NRDC, No. 250 at pp. 14-17). severe weather. Again, this is evidenced lower 'ractirn of consumers would be Trane, ARI, and EEI all disagree that from the average residential electricity iegatix ely impacted in terms of life- recent price increases due to electricity price forecasts from the AEO2002. cycle cost than under a 13 SEER deregulation will lead to higher Starting in the year 2003 average rates s'andanr.l. See 66 FR 28828. electricity rates in the long-term. For are projected to drop below those

Severrl comments disagreed with example, Trane asserts that competition forecasted by the AEO2000 and remain DOE's 'i e-cycle cost conclusions, will cause energy prices to consumers to that way until 2010. After 2010 the rates claiming hat DOE's analysis remain stable. EEI adds that price forecasted by both the AEO2002 and significantly underestimates the benefits collapses have recently occurred in AE02000 are essentially the same. In of the 13 SEER rule due to its failure to some ofthe same regional markets terms ofthe consumer analysis, this
account fcr recent increases in which experienced rate increases. EEI means that the life-cycle results based electricity prices. The comments note also states that retail price caps have on the AEO2000 price projections that DOE based its seasonal price been instituted in many areas ofthe would remain virtually unchanged ifthe forecasts on electricity price data from country that have been deregulated in AEO2002 projections were to be 1996-97 that were adjusted downward order to shield residential consumers substituted in their place. using Energy Information from the price fluctuations in the With regard to Synapse Energy

cAdministration (EA)projections ofC wholesale market. (Trane, No. 262 at pp. Economics' wholesale electricity price future annual electricity prices. Citing 14-16; ARI, No. 259 at pp. 33-34; EEI, analysis, DOE does recognize that
recent residential rate data from areas of No. 253 at p. 3). wholesale summertime electricity prices the country that have undergone some Rather than speculate on how current are on average 2V/2 c/kWh greater than form ofelectricity deregulation (e.g., volatility in energy markets will impact average wholesale rates. But as was Massachusetts, California, and the future electricity prices, DOE has stated in the January 22 final rule, DOE Northwest), the comments assert that consistently relied on EIA energy price cannot speculate as to how wholesale DOE's electricity cost projections fa to forecasts and has used other forecasts, prices will be translated into retail recognize the significant summertime including the various EIA scenarios, to prices to residential consumers. It is

consumer price increases that are bound the energy prces used i the possible that this difference in accompanying restructuring ofthe standards analysis. EIA's most recent wholesale rates will ultimately result in electric utility industry. For additional Annual Energy Outlook (AEO) for the higher marginal energy prices for the support, some comments refer to an Annual Energy Outlook (AEO) for the higher marginal energy prices for the analysiso couted by Synapse Energy year 2002 recognizes that over the past operation ofcentral air conditioners. Economics that demonstrated that year energy markets have been However, several other assumptions

summer daytime wholesale elctric extremely volatile. 2 Recent energy about future electricity prices are prices across the countr averaged market volatiliy as well as the equally reasonable. It is possible that approximately 2/2 ¢/kWh (kilowatt- economic slowdown and lower prices increased competition will result in hour) more than annual average following the September 2001 terrorists' higher fixed charges for utility service wholesale prices. These comments attacks in the United States have been and higher fixed charges would lower

onclude that ifDOE's analysis were incorporated inthe short-term marginal rates. That is, under revised to include more recent projections ofthe AEO2002. To be more competition, utilities may recover more electricitv prices, the results would specific regarding the AEO2002 oftheir costs of supplying electricity to indicate that a 13 SEER standard assumptions, its projections assume a consumers from fixed charges on utility represents a better choice for consumers transition to full competitive pricing of bills, thereby reducing the cost and the Nation. (ACEEE, No. 284 at pp. electricity in States with specific consumers have to pay for electricity 8-11; CFA, No. 246 at p. 2; Attorneys deregulation plans. Other States are being supplied at the margin. It is also General of New York and assumed to continue cost-of-service possible that higher peak load prices for Massachusetts, No. 277 at pp. 15-16; pricing. Price projections include the electricity would cause consumers to OOE, No. 275 at p. 3;Pacific Gas & significantly alter the times at which Electric Company (PG&E), No. 274 at US. Dpartmn ofEnergy-Energy Information they use air conditioning, thus reducing Elctrie CITIompany l(fl-i&cI.J, IMO. 27/t d Administration (EIA), Early Release of the Annual pp. 1-2; ASE, No. 282 at p. 4; Goodman, Energy Outlook 2002 EIA website: projected electricity costs (and cost No. 269 at p. 2; National Rural Electric <http:www.eia.doe.gov/oiaf/aeo/>. savings). Finally, it is possible that the 

### EE-RM/STD-98-440

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# 30**~** Federal Register/Vol. 67, No. lOO/Thursday, May 23, 2002/Rules and Regulations 

### 36381

affected may be more likely to seek alternatives, such as small capacity units or even delayed replacement of failed units. Those landlords that pass
on more than 100 percent ofthe costs ofnew equipment couldbenefit from efficiency standards, buttheirrenters
are much more likely to be adversely affected. Since no study couldbe found that addressed the specific population ofrenters likely to be affected by this rulemaking, DOE believes there is insufficient basis to change its analytical methods or conclusions regarding the likely effects ofcentral air conditioner and heat pump standards on lowincome renters. 2.**E;~ctrjcity** Prices

In ;1roposing a 12 SEER standard in**~ne** Ju'y 25 SNOPR, DOE stated that a 10wH "ractirn ofconsumers wouldbe :legathely impacted in terms oflifecycle Co.'st than undera 13 SEER s.'.andc:,n.1. See 66 FR 28828.**Sev~'rr**I comments disagreed with DOE's .'L**~-cycle** cost conclusions, claiming hat DOE's analysis significantly underestimates the benefits oftl.e 13**~~EER** rule due to its failure to accmmt fer recent increases in electricity prices. The comments note that DOE based its seasonal price forecasts on electricity price data from 1996-97 that were adjusted downward using Energy Information Administration (EIA) projections of future annual electricity prices. Citing recent residential rate data from areas of the country that have undergone some form ofelectricity deregulation (e.g., Massachusetts, California, and the Northwest), the comments assert that DOE's electricity cost projections fail to recognize the significant summertime

consumer price increases that are accompanyingrestructuring ofthe electric utility industry. For additional support, some commentsrefer to an analysis conductedby Synapse Energy Economics that demonstrated that

summer daytime wholesale electric prices across the country averaged approximately 21/2 IX/kWh (kilowatthour) more than annual average wholesClle prices. These comments concludethat ifDOE's analysis were revised to include more recent electricity prices, the results would indicate that a 13 SEER standard represents a better choice for consumers and the Nation. (ACEEE, No. 284 at pp. 8-11; CFA, No. 246 at p. 2; Attorneys General ofNew York and Massachusetts, No. 277 at pp. 15-16; OOE, No. 275 at p. 3; Pacific Gas & Electric Company (PG&E), No. 274 at pp. 1-2;ASE, No. 282 at p. 4; Goodman, No. 269 at p. 2; National Rural Electric Cooperative Association (NRECA), No. 278 at pp. 1-2; Environmental Ministries ofSouthern California, No. 236 at pp. 2-3; Texas ROSE, No. 241- SS at pp. 7-8; NCLC, No. 255 at pp. 2- 4; Northwest Power PlanningCouncil (NWPPC), No. 287 at pp. 1-3; Environmental Protection Agency (EPA), No. 276 atp. 4). Some comments further argue that the costs ofelectricity price increases due to air-conditioning

arepassed, in the form ofhigherrates, ontoalJ consumers for all end uses, regardless ofthe importance oftheir role in creating the price increase. Thus, DOE's analysis should account for how lower air-conditioning consumption lowers electricity bills for all consumers and not onlythose that utilize air conditioners. (NEEP, No. 273 at pp. 2- 3; NRDC, No. 250 at pp. 14-17).

Trane, ARI, andEEl all disagree that recentprice increases dueto electricity deregulation will lead to higher electricity rates in the long-term. For example, Trane asserts that competition will cause energy prices to consumers to remain stable. EEl adds that price collapses have recently occurred in

some ofthe same regional markets which experienced rate increases. EEl also states that retail price caps have been instituted in many areas ofthe country that have been deregulated in order to shieldresidential consumers from the price fluctuations in the wholesale market. (Trane, No. 262 at pp. 14-16; ARJ, No. 259 at pp. 33-34; EEl, No. 253 at p. 3).

Rather ilian speculate on how current volatility in energy markets will impact future electricity prices, DOE has consistently relied on EIA energy price forecasts and has used other forecasts, includingthe various EIA scenarios, to boundthe energy prices used in the standards analysiS. ElA's most recent Annual Energy Outlook (AEO) for the year 2002 recognizes that over the past year energy markets have been extremely volatile. 12 Recent energy market volatility as well as the economic slowdown and lower prices following the September 2001 terrorists' attacks in the United States have been incorporated inthe short-term projections ofthe AE02002. Tobe more specific regardingthe AE02002 assumptions, its projections assume a transitionto full competitive pricing of electricity in States with specific deregulation plans. Other States are assumed to continue cost-of-service pricing. Price projections include the

12U.S. Department ofEnergy-Energy Information Administration (EIA). Early Release ofthe Annual Energy Outlook 2002. ErA website: <http:www.eia.doe.gov/oiaf/aeo/>. contracts entered into by California to guarantee electricity supplies in the State. Increased competition in electricity markets is also represented through changes in the financial structure ofthe industry and efficiency and operating improvement. The impact ofElA's assumptions are evidenced from the average residential electricity price estimatedby AE02002 for the year 2001. The average rate estimatedby AE02002 for 2001 is 4.2 percent greater (or 0.3 IX/kWh) than that estimated bv the AE02000. Although the AE02002 short-term projections have taken into account recent events, EIA estimates that long-term volatility in energy markets will not occur from recent events or from the impacts ofsuch future events as supply disruptions or
severe weather. Again, this is evidenced from the average residential electricity price forecasts from the AE02002. Starting in the year 2003 average rates
are projected to drop below those forecasted by the AE02000 and remain that way until 2010. After 2010 the rates forecasted byboth the AE02002 and AE02000 are essentially the same. In terms ofthe consumer analysis, this

means that the life-cycle results based

on the AE02000 price projections would remain virtually unchanged ifthe AE02002 projections were to be substituted in their place.

With regard to Synapse Energy Economics' wholesale electricity price analysis, DOE does recognize that wholesale summertime electricity prices

are on average 2 1h IX/kWh greater than average wholesale rates. But as was stated in the January 22 final rule, DOE cannot speculate as to how wholesale prices will be translated into retail prices to residential consumers. It is possible that this difference in wholesale rates will ultimately result in higher marginal energy prices for the operation ofcentral air conditioners. However, several other assumptions about future electricity prices are equally reasonable. It is possible that increased competition will result in higher fixed charges for utility service and higher fixed charges would lower marginal rates. That is, under competition, utilities may recover more oftheir costs ofsupplying electricity to
consumers from fixed charges on utility bills, thereby reducing the cost
consumers have to pay for electricity being supplied at the margin. It is also possible that higher peak load prices for electricity would cause consumers to significantly alterthe times at which they use air conditioning, thus reducing projected electricity costs (and cost savings). Finally, it is possible that the

## EE-RM/STD-98-440- 30q

36382 Federal Register/Vol. 67, No. 100/Thursday, May 23, 2002/Rules and Regulations

recent trend toward increased retail 269 at p. 3). American Geothermal DX, installation costs is a factor that level competition will slow or even an HVAC contractor, asserts that, based supports adopting the less costly 12 stop. DOE recognizes that the Nation's on its experience, any cost difference SEER standard. electric utility systems are in the midst between installing a 13 SEER unit over 4. Manufactured Housing Owners of major regulatory, structural and a 12 SEER unit would be minimal. technological changes which are likely (American Geothermal DX, No. 241-HH York, ARI, and Nordyne Inc.
to have important effects on the at pp. 1-2). Several other comments, in (Nordyne) stated that consumers living marginal prices for electricity use that particular those from ACEEE, assert that in manufactured homes are especially

are charged to residential customers and DOE's treatment of the "footprint" issue vulnerable to the increased first costs that these effects may be particularly is speculative, i.e., DOE provides no associated with more efficient pronounced during periods ofespecially evidence that installation costs will equipment. They asserted that high (or low) electricity demand. actually increase for 13 SEER manufactured homes are typically However, given the many possible equipment. With regard to space- "starter" homes for low-to-middle scenarios affecting the costs ofoperating constrained equipment, ACEEE adds income families where any increases in central air conditioners, DOE has that because DOE has already moved to household expenses, including those decided to retain for this rulemaking the isolate this type of equipment as associated with more efficient spaceexisting method for estimating future separate product classes, it effectively conditioning equipment, are difficult to marginal elec'ricity :rices. This analysis dismisses any arguments asserting that afford. Because the life-cycle cost method utiliz .s the i lost current, the impact of space constraints would analysis made no explicit mention of comprehensiN e data available on the result in higher installation costs for this sub-population, they are concerned actual margin; Irate., paid by consumers "mainstream" 13 SEER equipment. that DOE did not consider and uses price forecas's that closely (ACEEE, No. 284 at pp. 13-14; ASE, No. manufactured-home owners in its parallel the me s current assessment 282 at p. 5; NRDC, No. 250 at p. 23; analysis. (York, No. 270 at pp. 2-3; ARI, published by LOE. National Grid, No. 241-00 at p. 2). No. 259 at p. 9; Nordyne, No. 264 at pp.

During the coming years, DOE intends Trane, ARI, and Rheem all argue that 1-2).
to monitor careiully thoe ctual changes 13 SEER equipment is significantly DOE considered all household types in the marginal electricit ' rates being larger than 12 SEER systems. As a utilizing central air conditioners or heat paid by consumers and oher electricity result, installation costs are significantly pumps in its consumer life-cycle cost
users, and to look fcor any trends in these greater for 13 SEER units than for 12 analysis, including manufactured changes that could help improve DOE's SEER units. In particular, they state homes. Ofthe households with central analysis. For future efficiency standards there will be many instances where it air conditioners analyzed in the rulemakings, DOE intends to use the will be very difficult to physically fit consumer life-cycle analysis, 4.5 percent
most recent data available on marginal larger indoor coils, needed to match were manufactured homes. For rates, considering emerging trends in outdoor 13 SEER condensing units, households with heat pumps, 6.1 such rates that result from significant without retrofitting the air handler percent were manufactured homes. changes in electricity rate design (such originally designed for a smaller, lower In its decision to propose 12 SEER

as fixed and variable charges, or time- SEER indoor coil. (ARI, No. 259 at pp. standards for conventional products, of-use rates), metering and demand 25-26; Trane, No. 262 at pp. 5-9; DOE took into consideration the first management technologies, equipment Rheem, No. 248 at p. 3). cost impacts ofhigher efficiency

use load shapes, or in the allocations of Throughout the analysis DOE has standards to manufactured home
costs among sectors. assumed that installation costs would owners. In particular, DOE was

Within approximately five years of remain constant as efficiency increased. concerned that the 13 SEER standards the current rulemaking, DOE expects to As stated in the January 22 final rule, issued in the January 22 final rule could complete another review of the DOE believes that even ifinstallation cause manufactured home consumers to efficiency standards for central air costs do generally rise as the size and shift from heat pumps to other systems conditioners and heat pumps. During weight ofequipment increases, that include resistance heat systems. See this period DOE hopes that sufficient manufacturers will have the incentive July 25 SNOPR, 66 FR 38836. data will become available to enable it under new standards to reduce the size
to forecast with greater confidence the of 13 SEER equipment using various B. Life-Cycle Cost andPaybackPeriod marginal rates for residential electricity approaches, such as adopting variable Although a majority ofthe comments

users. If available, DOE expects to use speed and modulating capacity concerning consumer impacts addressed such rates to support modified technologies, converting to either low-income impacts or the effect standards. microchannel heat exchangers, that electricity prices have on the increasing the size of the unconstrained number ofconsumers either benefitting 3. Installation Costs outdoor unit or indoor unit only, or or being burdened by increased

The potential increase in installation changing the footprint or elevation of standards, several comments expressed
costs associated with 13 SEER the unit. See January 22 final rule, 66 FR concerns over other elements ofthe equipment was cited by DOE as one of 7180. Although DOE still maintains that consumer life-cycle cost analysis. the reasons for not proposing a 13 SEER installation costs generally are unlikely standard in its July 25 SNOPR. See 66 to increase due to the above reason, as 1. Produ c Lifetme FR 38836. Several comments disagreed stated in the July 25 SNOPR, there is the Energy Market &Policy Analysis, Inc. with DOE's conclusion that installation possibility that substantial increases in (EMPA) stated that DOE incorrectly
costs could be significantly different installation costs due to larger and used estimates ofthe full lifetime of the between 12 and 13 SEER equipment. heavier 13 SEER systems may equipment rather than the time that the Goodman claims that because their 12 materialize for some consumers, equipment may remain in the and 13 SEER equipment are similar in especially for those replacing 10 SEER ownership and use ofthe initial owner. size, there is almost no difference in the systems. See July 25 SNOPR, 66 FR (EMPA, No. 241-LL at pp. 5-6). installation costs associated with their 38836. As a result, DOE continues to In analyzing increases in efficiency 12 and 13 SEER systems. (Goodman, No. believe the possibility ofincreased standards, DOE is required by section 

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### IVol. 67, No. 100

### IThursday, May 23, 2002 

### IRules and Regulations

recent trend toward increased retail level competition will slow or even stop. DOE recognizes that the Nation's electric utility systems are in the midst ofmajor regulatory, structural and technological changes which are likely to have important effects on the marginal prices for electricity use that

are charged to residential customers and that these effects may be particularly pronounced during periods ofespecially high (or low) electricity demand" However. given the many possible scenarios affecting the costs ofoperating central air conditioners. DOE has decided to retain for this rulemakingthe existing method for estimating future marginal elec'ficity")rices. This analysis method utiliz lS the 110St current. comprehensh:l data c.vailable onthe actual margin, I

### rate., l'aid by consumers and uses price hrecas:s that closely parallel the me 5' cune)\t assessment published by L8E.

Duringthe ccming yeilfs. DOE intends to monitor carelully th'3 \ctual changes in the marginal electricit. 'rates being paid by consumers and 0,her electricity

users. and to look fc.'r any trends in these changes that couldhelp improve DOE's analysis. For future e;firiency standards rulemakings. DOE intends to use the most recent data available on marginal rates. considering emergingtrends in such rates that result from significant changes in electricity rate design (such

as fixed and variable charges. or timeof-use rates). metering and demand management technologies, equipment

use load shapes, or in the allocations of costs among sectors.

Within approximately five years of the currentrulemaking. DOE expects to complete another review ofthe efficiency standards for central air conditioners and heat pumps. During this period DOE hopes that sufficient data will become available to enable it to forecast with greater confidence the marginal rates for residential electricity

users. Ifavailable. DOE expects to use suchrates to support modified standards.
3. Installation Costs

The potential increasa in installation costs associated with 13 SEER equipment was citedby DOE as one of the reasons for not proposing a 13 SEER standard in its July 25 SNOPR. See 66 FR 38836. Several comments disagreed with DOE's conclusion that installation costs could be significantly different between 12 and 13 SEER equipment. Goodman claims that because their 12 and 13 SEER equipment are similar in size. there is almost no difference in the installation costs associated with their 12 and 13 SEER systems. (Goodman. No. 269 at p. 3). American Geothermal DX.

an HVAC contractor, asserts that. based

on its experience. any cost difference between installing a 13 SEERunit over
a 12 SEER unit would be minimal. (American Geothermal DX. No. 241-HH at pp. 1-2). Several other comments. in particularthose from ACEEE. assert that DOE's treatment ofthe "footprint" issue is speculative. i.e., DOE provides no evidence that installation costs will actually increase for 13 SEER equipment. With regard to spaceconstrained equipment, ACEEE adds that because DOE has already moved to isolate this type ofequipment as separate product classes. it effectively dismisses any arguments asserting that the impact ofspace constraints would result in higher installation costs for "mainstream" 13 SEER equipment. (ACEEE. No. 284 at pp. 13-14; ASE, No. 282 atp. 5; NRDC. No. 250 at p. 23; National Grid. No. 241-00 at p. 2).

Trane. 

### ARt and Rheem all argue that 13 SEER equipment is significantly larger than 12 SEER systems. As a result, installation costs are significantly greater for 13 SEER units than for 12 SEER units. In particular, they state there will be many instances where it will be very difficult to physically fit larger indoor coils, needed to match outdoor 13 SEER condensing units. withoutretrofitting the air handler originally designed for a smaller, lower SEER indoor coil. (AR!, No. 259 at pp. 25-26; Trane. No. 262 at pp. 5-9; Rheem. No. 248 at p. 3).

Throughout the analysis DOE has assumed that installation costs would remain constant as efficiency increased. As stated in theJanuary 22 final rule, DOE believes that even ifinstallation costs do generally rise as the size and weight ofequipment increases. manufacturers will have the incentive under new standards to reduce the size of 13 SEER equipment using various approaches. such as adopting variable speed and modulating capacity technologies, converting to microchannel heat exchangers. increasingthe size ofthe unconstrained outdoor unit or indoorunit only, or changingthe footprint or elevation of the unit. See January 22 final rule, 66 FR 7180. AlthoughDOE still maintains that installation costs generally are unlikely to increase due to the above reason. as stated in the July 25 SNOPR. there is the possibility that substantial increases in installation costs due to larger and heavier 13 SEER systems may materialize for some consumers. especially for those replacing 10 SEER systems. See July 25 SNOPR. 66 FR 38836. As a result. DOE continues to believe the possibility ofincreased installation costs is a factor that supports adopting the less costly 12 SEER standard.
4. Manufactured Housing Owners

York. ARI. and Nordyne Inc. (Nordyne) stated that consumers living in manufactured homes are especially vulnerable to the increased first costs associated with more efficient equipment. They asserted that manufactured homes are typically "starter" homes for low-to-middle income families where any increases in household expenses. includingthose associated with more efficient spaceconditioning equipment. are difficult to afford. Because the life-cycle cost analysis made no explicit mention of this sub-population. they are concerned that DOE did not consider manufactured-home owners in its analysis. (York. No. 270 at pp. 2-3; ARI. No. 259 at p. 9; Nordyne. No. 264 at pp. 1-2).

DOE considered all household types utilizing central air conditioners or heat pumps in its consumer life-cycle cost analysis. including manufactured homes. Ofthe households with central air conditioners analyzed in the

consumer life-cycle analysis. 4.5 percent
were manufactured homes. For households with heat pumps, 6.1 percent were manufactured homes,

In its decision to propose 12 SEER standards for conventional products, DOE took into consideration the first cost impacts ofhigher efficiency standards to manufactured home owners, In particular. DOE was concerned that the 13 SEER standards issued in the January 22 final rule could

cause manufactured home consumers to shift from heat pumps to other systems that include resistance heat systems. See July 25 SNOPR. 66 FR 38836,
B. Life-Cycle Cost andPayback Period

Although a majority ofthe comments concerning consumer impacts addressed either low-income impacts or the effect that electricity prices have on the number ofconsumers either benefitting

orbeing burdened by increased standards. several comments expressed

concerns over other elements ofthe

consumer life-cycle cost analysis.
1. ProductLifetime

Energy Market & Policy Analysis, Inc, (EMPA) stated that DOE incorrectly used estimates ofthe full lifetime ofthe equipment rather than the time that the eqUipment may remain in the ownership and use ofthe initial owner, (EMPA. No. 241-LL at pp. 5-6).

In analyzing increases in efficiency standards. DOE is required by section

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325(o)(2)(B)(i) ofEPCA to use the full product lifetime. Because heat pumps ofequipment lifetime, compressor lifetime ofthe equipment for are used during both the cooling and replacement costs were also included in establishing the operating cost savings heating seasons, they generally incur the analysis. resulting fromhigher efficiency more operating hours and more wear With regard to warranty costs, these standards. The second factor in section during the course ofa yearthan air costs were essentially considered by 325 to beconsidered for determining conditioners. Thus, theuse of aheat incorporating repair costs into the whether the benefits ofthe standard pump retirement function for air analysis. Asnoted above, a product that exceed its burdens is "the savings in conditioners likely underestimates their is less reliable or contains more operating costs throughout the lifetime. Although heatpump and air expensive components was assumed to estimated average life ofthe covered conditioner lifetimes likely differ, DOE have ahigher cost ofrepair over its product in the type (or class) compared was unable to obtain any well lifetime. As stated in the October 5,
to any increase in the price of,or in the substantiated data to determine whether 2000 NOPR, either the consumer orthe initial charges for, or maintenance air conditioner lifetimes are longerthan warranty provider will bear that added
expenses of,the covered products those for heat pumps. Without such cost directly through more frequent which are likely to result from the data, theheat pump retirement function service calls or higher repair costs. See imposition ofthe standard." 42 U.S.C, was assumed valid for air conditioners. 65 FR 59599-59600. Ifthe cost is 6295(o)(2)(B)(i)(11). covered by warranty, however, the 

### 6295(o)(2)(B)[(i)(l). 2. Warranty, Maintenance, and Service warrantyrovider asses it back t

A retirement function with .n avefage Costsure warrant yholvder passes in the formof 18.4-year equipment lifetime vas ust d future warranty holders in the form of

nthe life-cycle cost analysis ir centi al EMPA stated that DOE made no slightly higher warranty prices. DOE
air conditioners and heat pum iF. As attempt to collect or include warranty, believes the incremental increase in the 

### stated in the January 22 final rile,the maintenance, and service costs in the price ofthe warranty is equal to, or just basis ofthe 18.4-year equipmel t consumer analysis. (EMPA, No. 241-LL slightly higher, than the discounted
lifetime was a survey conducted on lifetime was a conducted at pp. 5-6). On the issue ofwarranty present value ofthe incremental repair


### more than 2,1 00 heat pumps in a .evelA costs, Mercatus Center adds that the costs over the life ofthe warranty. Over
more that rin 2of nw the e U.Sg 3 S 66 average 

### state region of theU.S.13 See 66 FP reliability patterns ofnew components the long term then, the average se7179-7

. e180. 6that are part ofhigh efficiency products consumer always incurs higher repair

The survey determined not only the are less known, sowarranty accruals costs, either directly or through higher lifetime ofa complete heat pump may be significantly higher forthese warranty prices. Since the life-cycle cost system, but the life of the original products (i.e., 12 to 13 SEER analysis considers the present value of


### compressor as well. Although the equipment). (Mercatus Center, No. 242 consumer life cycle costs on the average system lifetime is on average over 18 at p. 8). consumer, incremental repair costs and 

### years, the survey also showed tat the With regard to maintenance and incremental warranty costs are the years, the survey also showed that the service (or repair) costs, DOE did collect same, and interchangeable. original compressor lifetime was, on data or makereasonable assumptions to 

### average, 14 years. Thus,the survey establish both types ofcosts3. Markups indicated that essentially all heat pump Maintenance costs are costs to the ARI, Trane, and York all believe that

owners replaced their original consumer ofmaintaining equipment DOE greatly underestimated the compressor once in the lifetime of operation such as checking and manufacturer, distributor, and system. maintaining refrigerant charge levels contractor markups used to derive

Since the heat pump survey clearly and cleaning heat exchanger coils. For consumer purchase prices. ARI indicates that the original compressor isthe life-cycle cost analysis, maintenance maintains that the manufacturer markup replaced once in a system's life, DOE's costs were based on data from Service should be approximately 1.35, as analysis was based on the inclusion of Experts, anHVAC service company. See verified by a survey ARI conducted in

arepair cost for the compressor. TSD, Chapter 5. Maintenance costs were the fall of2000. Furthermore, ARI Conducting the analysis in this manner assumed not to change with increased continues to believe that the distributor retains the average system lifetime of efficiency, the rationale being that the and contractor markups should be 18.4 years but explicitly addresses the general maintenance ofmore efficient approximately 1.37, as determined by replacement cost ofthe compressor, products would not be impacted by the DOE inthe 1999 Supplemental Advance which is the most expensive component more sophisticated components that Notice ofProposed Rulemaking ofa system. As indicated by the survey they contain. (SANOPR). (ARI, No. 259 at pp. 23-25; data, the compressor was assumed to be Service or repair costs are costs to the Trane, No. 262 atpp. 10-11; York, No. replaced in the 14th year of the system's consumer for replacing or repairing 270 at p. 3). life. Although a shorter equipment components which have failed. For As stated in the January 22 final rule, lifetime is possible, DOE has notbeen baseline equipment (i.e., 10 SEER) and DOE did assume for the Manufacturer provided with more substantive data to equipment with efficiencies greaterthan Impact Analysis that markups increase support discontinuing itsuse ofthe 13 SEER, annualized repair costs were with increasing efficiency under a given above mentioned survey data. DOE assumed to equal one-halfthe standard level. However, for the believes thatthe survey data provides equipment price divided by the average consumer economic analyses, as the

an accurate representation ofcentral air lifetime (18.4 years). Equipment with minimum standard level increases, DOE conditioner and heat pump life. efficiencies of 11 through 13 SEER were determined that the distributor and 

### Although the survey was conducted assumed to incur a one percent increase contractor markups on more efficient only on heat pumps, the retirement in repair cost over thebaseline level. products do decrease. SeeJanuary 22 function was also used as the basis for Because systems with efficiencies up to final rule, 66 FR 7180. estimating central air conditioner and including 13 SEER generally do not DOE's analysis ofdistributor cost data
include sophisticated electronic revealed a measurable difference '3 Bucher. ME.. Grastataro, C.M.. and Coleman. Bucher M.E.. Grastataro, C.M. and Coleman components, repair costs were assumed between the average aggregate markup
in Diverse Cimates. ASHRAE T Lnsctios 1. to remain essentially flat from 10 to 13 on the entire set ofdirect business costs 96(1): pp. 1567-1571. 

### SEER. As noted above in the discussion 

### and the incremental markup on only 

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### Register/Vol. 67. No. 100/Thursday. May 23. 2002/Rules and Regulations 36383

325(0)(2)(B)(i) ofEPCA tousethe full lifetime ofthe equipment for establishingthe operatingcost savings resulting from higher efficiency standards. The secondfactor in section 325 to be consideredfor determining whetherthebenefits ofthe standard exceed itsburdens is "the savings in operating costs throughoutthe estimated average life ofthe covered product inthetype (or class) compared to any increase in theprice of. or inthe initial charges for. or maintenance expenses of. the covered products whichare likely toresult from the imposition ofthe standard." 42 U.S.C. 6295(0)(2)(B)(i)(n).

A retirement function with'.n 

### ave"age 18.4-yearequipmentlifetime 

### vas USt d inthe life-cycle cost analysis i 

### 1r cenbal air conditioners and heat pum If. 

### As stated inthe January 22 final n Ie. tho basis ofthe 18.4-yearequipmel t lifetime was a survey conducteJon more than 2.100 heat pumps in 3 

### cleven state region ofthe U.S.n See 

### 66 FP 7179-7180.

The survey determined not onlythe lifetime ofa complete heat pump system. butthe life ofthe original compressoras well. Althoughthe system lifetime is on average over 18 years. the survey also showed that the original compressorlifetime was. on average. 14 years. Thus.the survey indicatedthat essentially all heatpump owners replaced their original compressor once inthe lifetime of system.

Since theheatpump survey clearly indicatesthatthe original compressoris replaced once in a system's life. DOE's analysis was based onthe inclusion of

a repair cost for the compressor. Conductingthe analysis inthis manner retains the average system lifetime of 18.4 years butexplicitly addresses the replacement cost ofthe compressor. which isthe most expensive component ofa system. As indicatedby the survey data. the compressor was assumed to be replaced inthe 14thyear ofthe system's life. Although a shorterequipment lifetime is possible. DOE has notbeen provided with more substantive data to support discontinuingits use ofthe above mentioned survey data. DOE believes that the survey data provides

an accurate representation ofcentral air conditionerandheat pump life. Althoughthe surveywas conducted only onheatpumps. theretirement function was also usedas thebasis for estimating central airconditioner

13Bucher. M.E.• Grastataro. C.M.• andColeman. W.R. "HeatPump Life and Compressor Longevity in Diverse Climates." ASHRAE Transactions. 1990. 96(1): pp. 1567-1571. 

### product lifetime. Becauseheatpumps
are used duringboththe cooling and heating seasons, they generally incur
more operatinghours and more wear duringthe course ofa yearthan air conditioners. Thus, the use ofa heat pumpretirement function for air conditioners likely underestimates their lifetime. Althoughheatpump and air conditionerlifetimes likely differ, DOE

was unable to obtain any well substantiated datatodeterminewhether airconditionerlifetimes are longerthan those for heat pumps. Without such data. the heat pumpretirement function

was assumed valid for air conditioners.
2. Warranty. Maintenance. and Service Costs

EMPA stated that DOE made no attemptto collect or includewarranty, maintenance. and service costs inthe

consumer analysis. (EMPA, No. 241-LL at pp. 5-6). On the issue ofwarranty costs, Mercatus Center addsthatthe reliabilitypatterns ofnew components that are partofhigh efficiency products

are less known. so warranty accruals may be significantly higher for these products (j.e.• 

### 12 to 13 SEER eqUipment). (Mercatus Center, No. 242 atp.8).

With regard to maintenance and service (or repair) costs, DOE did collect data or make reasonable assumptions to establishbothtypes ofcosts.

Maintenance costs are costs to the

consumer ofmaintainingequipment operation suchas checking and maintainingrefrigerant charge levels and cleaningheat exchanger coils. For the life-cycle cost analysis. maintenance costs were based on data from Service Experts. an HVAC service company. See 

### TSD, Chapter 5. Maintenance costs were assumed notto change with increased efficiency, therationalebeingthat the general maintenance ofmore efficient products would notbe impactedby the

more sophisticated components that they contain.

Service or repair costs are costs to the

consumer for replacing or repairing componentswhichhave failed. For baselineequipment (i.e., 

### 10 SEER) and equipmentwith efficiencies greater than 13 SEER, annualizedrepair costs were assumed to equal one-halfthe equipmentprice dividedbythe average lifetime (18.4 years). Equipment with efficiencies of 11 through 13 SEERwere assumed to incura one percent increase inrepair cost over thebaseline level. Because systems with efficiencies upto andincluding 13 SEERgenerally do not include sophisticated electronic components. repair costs were assumed toremain essentially flat from 10to 13 SEER. As noted above inthe discussion ofequipment lifetime, compressor replacement costs were also included in the analysis.

With regard towarranty costs, these costs were essentially considered by incorporating repair costs into the analysis. As noted above, a product that is less reliable orcontains more expensive components was assumed to have a higher cost ofrepair over its lifetime. As stated in the October 5, 2000 NOPR, eitherthe consumer orthe warranty provider will bearthat added cost directly through more frequent service calls orhigher repair costs. See 

### 65 FR 59599-59600. If

### the cost is coveredby warranty, however, the warranty providerpasses itbackto future warranty holders inthe form of slightly higherwarranty prices. DOE believes the incremental increase in the price ofthe warranty is equal to, orjust slightly higher, than the discounted present value ofthe incremental repair costs over the life ofthe warranty. Over the long term then,the average consumer always incurs higher repair costs, either directly or through higher warranty prices. Since the life-cycle cost analysis considers the presentvalue of
consumer life cycle costs on the average consumer, incremental repair costs and incremental warranty costs are the same, and interchangeable. 3. Markups

ARI, Trane. andYork all believe that DOE greatly underestimated the manufacturer, distributor, and contractor markups used to derive

consumer purchase prices. ARI maintains that the manufacturermarkup shouldbe approximately 1.35. as verifiedby a survey ARI conducted in the fall of2000. Furthermore, ARI continues to believe that the distributor and contractor markUps shouldbe approximately 1.37, as determined by DOE inthe 1999 Supplemental Advance Notice ofProposed Rulemaking (SANOPR). (ARl, No. 259 at pp. 23-25; Trane, No. 262 at pp. 10-11;York, No. 270 at p. 3).

As stated in the January 22 final rule, DOE did assume for the Manufacturer Impact Analysis that markups increase with increasingefficiency undera given standard level. However, for the

consumer economic analyses. as the minimum standard level increases, DOE determined thatthe distributor and contractormarkups on more efficient products do decrease. See 

### January 22 final rule, 66 FR 7180.

DOE's analysis ofdistributor cost data revealed a measurable difference between the average aggregate markup
on the entire set ofdirectbusiness costs and the incremental markup on only

## EE-RM/STD-98-440- 30l

36384 Federal Register/Vol. 67, No. 100/Thursday, May 23, 2002/Rules and Regulations

direct equipment costs. In other words, 4. Energy Use the DOE has notjustified why it should for an incremental increase in the cost a. Residential Energy Consumpton not adopt the HSPF 7.7 and SEER 13 ofthe equipment, the markup required Survey standards for split system heat pumps to cover the incremental cost increase is since this level ofefficiency satisfies the distinctly different than the average EMPA asserted that DOE violated "rebuttable presumption" requirements markup required to cover all business well-established statistical principles by ofthe law. (NWPPC, No. 287 at p. 3). markupcosts. The average aggregate distributor basing the proposed standards on small As noted in the July 25 SNOPR, DOE markupco. Teaeragmned to e 1.36 andssubsets of data from EIA's Residential recognizes some standard levels for markup was determined to vbe 1.36 and Energy Consumption Survey (RECS). As some product classes satisfy the is assumed to cover the direct business a result, EMPA concludes that DOE rebuttable presumption requirements in costs that are present at the current simply has no reasonable claim of section 325(o)(2)(B)(iii). But DOE points baseline (i.e., 10 SEER) level. Note that validity for either the calculations or its out that the statute requires DOE to use the average aggregate distributor markup analytical conclusions. (EMPA, No. "the applicable test procedure" to of 1.36 is approximately equal to the 241-LL at pp. 2-4). calculate the payback periods for value used in DOE's analysis for the As stated in the January 22 final rule, purposes ofthe rebuttable presumption. SANOPR. The incremental distributor as part ofthe process to improve the As explained in the October 5, 2000 markup was determined to be 1.11 and energy efficiency standards analysis, NOPR, the annual cooling and heating is assumed to cover incremental DOF is committed to use of sensitivity energy consumption calculations based equipment cost increases, such as those ana ysis tc 3ls to evaluate the potential on DOE's test procedure are associated with increases in equipment dist -ibutio: ofimpacts among different significantly greater than the weightedefficiency. subi ro.ps cfconsumers. DOE believes average values from DOE's life-cycle

DOE's analysis ofcontractor cost data that IECS provides a nationally cost analyses based on the 1997 revealed a significant difference repri sentati ve household data set which Residential Energy Consumption between the markup required for is su. ted for Lnducting the type of Survey, used in other DOE analyses, between the markup requipred fore nses sensi'iity analyses suggested by the including evaluation ofconsumer covering labor and equipment expenses Proces Improlrement Rule. Limiting the impacts. 65 FR 59596. For this reason, and the markup required for covering RECS houselho ds to those equipped the payback periods presented in only equipment expenses. The markup with either cen ral air conditioners or Section VII ofthis portion ofthe covering all business expenses was heat pumps, tht life-cycle cost analysis preamble, entitled "Analytical Results determined to be 1.53 while the markup performs e houshold-by-household and Conclusions," are significantly for only equipment expenses was analysis that predicts the percentage of longer than those calculated to determined to have a mean value of households that will incur net life-cycle determine whether the rebuttable 1.27. The 1.53 markup value covering cost savings or costs from an increased presumption applies to these products. all business expenses is approximately efficiency standard. See January 22 final More importantly, DOE's economic equal to the value used in DOE's rule, 66 FR 7178-7179. justification analysis for a particular analysis for the SANOPR. Because the b Rebound Effect class ofcovered product involves life-cycle cost analysis breaks out the consideration offactors other than the contractor's installation cost (i.e., the Mercatus Center alludes to what it payback period. For example, as cost to install the equipment) from the termed the "rebound effect" when discussed in the July 25 SNOPR (66 FR
cost which is charged for the stating that more efficient air- 38837), one reason DOE did not propose equipment, only the markup value of conditioning due to higher SEER Trial Standard Level 3 (12 SEER for air 1.27 is applicable for marking up the standards would cause consumers to conditioners and 13 SEER for heat equipment. As with the distributor use their equipment more often, thereby pumps) was the potential ofthose markup, a contractor markup associated negating some of the energy savings standards to cause heat pump owners to realized from the more efficient only with an incremental increase in equipmnt. (Mercatus Center, No. 242 at switch to resistance heating, and equipment cost was also under therebound possibly aversely affect competition. Since the incremental markup was effect is that consumers will use more C.Shipments/National Energy Savings shown to be close to the average value efficient equipment more often because himents Forecasts of 1.27, only the average markup value ofthe greater utility bill savings they

. pmes orecas
was used in the analysis. will realize relative to less efficient Mercatus Center asserts that DOE's

As a result of determining lower equipment.shipment model does not account for distributor and contractor markups on Although DOE recognizes that the reduced equipment sales that occur incremental equipment cost increases, consumers may utilize more efficient when consumers forego purchases due such as those associated with more equipment more often, the LCC analysis to the increased equipment prices efficient equipment, the overall did not attempt to account for the resulting from higher efficiency markups decrease as efficiency possible reduction in energy savings standards. As a result ofdelayed increases. Although comments argued dueto a rebound effect. As aresult, the consumer purchases, the energy savings increases. Although comments arguedL tod fn to the nation would build up more that overall distributor and contractor LCC impacts detailed in today's final to the nation would build up more that overall distrbutor and contractor rule may overestimate actual consumer slowly than forecasted by DOE. markups should not decrease, no data cost and energy savings that result from (Mercatus Center, No. 245 at p. 5). This

was offered to counter DOE's approach. an increase in the minimum energy is effectively an argument that the price Thus, DOE has retained its methodology efficiency standards for central air elasticity for the air conditioner and for estimating both distributor and conditioners and heat pumps. heat pump market should be higher contractor markups. Appendix D ofthe than what was assumed. TSD provides more detailed information 5. Rebuttable Payback Period DOE has used historical saturation

on this issue. NWPPC asserts that 13 SEER, at least trends to establish price elasticities for for split system heat pumps, is the overall air conditioner and heat economically justified. NWPPC states pump market. Higher saturation levels 

### 36384 

## EE-RM/STD-98-440-**30~** 

### Federal R.egister/Vol. 67, No.**lO~/Thursday,** 

### May 23, 2002/Rules and Regulations

direct equipmentcosts. In otherwords, for anincremental increase in the cost ofthe equipment, the markup required to covertheincremental cost increase is distinctly different thanthe average markuprequiredto cover all business costs. The average aggregate distributor markup was determinedto be 1.36 and is assumed to coverthe directbusiness costs that are presentat the current baseline (j.e., 

### 10SEER) level. Note that the average aggregate distributor markup of 1.36 is approximately equal to the value used inDOE's analysis for the SANOPR. The incremental distributor markup was determinedto be 

### 1.11 and is assumed to coverincremental equipmentcost increases, suchas those associated with increases inequipment efficiency.

DOE's analysis ofcontractor cost data revealed a significant difference between the markuprequired for coverino laborand equipmentexpenses and the°markup required for covering onlyequipment expenses. The markup covering all business expenses was determined to be 1.53 whilethe markup for only equipment expenses was determined to have a mean value of 1.27. The 1.53 markup value covering all business expenses is approximately equal to the valueusedinDOE's analysis for the SANOPR. Because the life-cycle cost analysis breaks outthe contractor's installation cost (j.e., 

### the costto installtheequipment) from the cost which is chargedfor the equipment, onlythe markup value of 1.27 is applicable for marking upthe equipment. As with the distributor markup, a contractor markup associated onlywith an incremental increase in equipment cost was also determined. Since the incremental markup was shownto be closeto the average value of 1.27, onlythe average markup value

was used inthe analysis.

As a result ofdetermining lower distributor andcontractormarkups on incremental equipmentcostincreases, such as those associated with more efficient equipment, the overall markups decrease as efficiency increases. Although comments argued that overall distributor and contractor markups should not decrease, no data

was offered to counterDOE's approach. Thus, DOE has retained its methodology for estimatingbothdistributor and contractor markups. Appendix 0 

### ofthe TSD provides more detailed information

on this issue. 4. Energy Use

a. Residential Energy Consumption Survey

EMPA asserted thatDOE violated well-established statistical principles by basing the proposed standards on small subsets ofdata from EIA's Residential Energy Consumption Survey (RECS). As

a result, EMPA concludes that DOE simply has no reasonable claim of validityfor eitherthecalculations orits analytical conclusions. (EMPA, No. 241-LL at pp. 2-4).

As statedm theJanuary 22 final rule,

as partofthe ?rocessto improvethe energy efficiency standards analysis, DOF is committed to use ofsensitivity
ana ysis tt'llstoevaluatethe potential dist'ibutio:.· ofimpacts among different sub!**ro~pc;** (f

### consumers. DOE believes that**~CS** 

### p.ovides a nationally reprl sentative household data set which is su. ttld fo), l'lnductingthe type of sensi·h1ty an(llyses suggested bythe**Proce~s** 

### Impl'OTTement Rule. Limiting the RECS hc,usebo ds to those equipped with eithercen ral air conditioners or heat pumos,tht. life-cycle cost analysis performs

## l'**hous.~hold-by-household** 

### analysis th.,t predicts thepercentage of households that will incurnet life-cycle cost savings orcosts from anincreased efficiency standard. SeeJanuary 22 final rule, 66 FR 7178-7179.
b. Rebound Effect

Mercatus Center alludesto what it termed the "reboundeffect" when statingthatmore efficient air

### conditioning dueto higher SEER standardswouldcause consumersto
usetheirequipment more often, thereby negating some ofthe energy savings realized from the more efficient equipment. (Mercatus Center, No. 242 at pp. 9-10). Assumedundertherebound effect is thatconsumers will use more efficient equipmentmore often because ofthe greaterutilitybill savings they willrealize relative to less efficient equipment.

Afthough DOE recognizes that

consumers may utilize more efficient equipmentmore often, the LCC analysis didnot attemptto account for the possible reduction inenergy savings dueto a rebound effect. As a result, the LCC impacts detailed in today's final rulemay overestimate actual consumer cost and energy savings thatresult from
anincrease inthe minimum energy efficiency standards for central air conditioners andheat pumps. 5. Rebuttable Payback Period

NWPPC asserts that 13 SEER, at least for split system heat pumps, is economicallyjustified. NWPPC states theDOE has notjustified why it should not adopt the HSPF 7.7 and SEER 13 standards for split system heat pumps since this level ofefficiency satisfies the "rebuttablepresumption"requirements ofthe law. (NWPPC, No. 287 at p. 3).

As noted in theJuly 25 SNOPR, DOE recognizes some standard levels for

some product classes satisfy the rebuttable presumption requirements in section 325(0)(2)(B)(iii). ButDOE points out that the statute requires DOE to use "the applicable test procedure"to calculatethe payback periods for purposes ofthe rebuttable presumption. As explained inthe October 5, 2000 NOPR, the annual cooling andheating energy consumption calculationsbased

onDOE's test procedure are significantly greater thanthe weightedaverage values from DOE's life-cycle cost analyses based onthe 1997 Residential Energy Consumption Survey, used in otherDOE analyses, includingevaluation ofconsumer impacts. 65 FR 59596. Forthisreason, the payback periods presented in SectionVII ofthis portion ofthe preamble, entitled "Analytical Results andConclusions," are significantly longer than those calculated to determine whetherthe rebuttable presumption appliesto these products. More importantly, DOE's economic justification analysis for a particular class ofcoveredproductinvolves consideration offactors otherthan the paybackperiod. For example, as discussed in theJuly 25 SNOPR (66 FR 38837), one reason DOE did not propose Trial Standard Level 3 (12 SEER for air conditioners and 13 SEER for heat pumps) was the potential ofthose standardsto causeheat pump owners to switch to resistance heating, and possibly adversely affect competition.
C. 

### Shipments/NationalEnergy Savings


### 1. Shipments Forecasts

Mercatus Center asserts that DOE's shipment model does not account for the reduced equipment sales that occur when consumers forego purchases due tothe increased equipmentprices resulting from higher efficiency standards.As a result ofdelayed

consumer purchases, the energy savings tothe nation wouldbuildup more slowlythan forecasted by DOE. (Mercatus Center, No. 245 at p. 5). This is effectively an argument that the price elasticity for the airconditioner and heatpumpmarket shouldbe higher thanwhat was assumed.

DOE hasused historical saturation trends to establish price elasticities for the overall air conditionerand heat pumpmarket. Higher saturation levels

## EE-RM/STD-98-440 -_o
Federal Register/Vol. 67, No. 100/Thursday, May 23, 2002/Rules and Regulations 36385

are assumed to decrease price elasticity, savings resulting from more efficient reduction in fuel burned in power which makes sales volume less sensitive standards due to the marginal heat rates plants and (2) the indirect effect
to price increases. Over thepast twenty which were used to convert electrical whereby the slowing ofelectricity
years household saturation levels of energy savings at the site (i.e., at the demand growth slows new investment, central air-conditioning have increased, household or commercial building) into thereby impeding the rate ofoverall primarily due to the steady increase in fuel savings at the source (i.e.,at the improvement in power sector efficiency. real household incomes. In order to power plant). ACEEE contends that the While this latter effect would seem tobe capture the effect that increased value assumed by DOE in 2018 and trivial relative to the first, it grows equipment price and household income beyond (5519 Btu/kWh) is well below significantly over time because fewer have on equipment sales, the shipments theheat rate estimates provided by EIA and fewer ofmore efficient generating model breaks the air conditioner market (e.g., 9617 Btu/kWh in 2020). Using the plants are added to the power system. into the following segments: New EIA heatrate estimate would lead to By the end ofthe forecast period, this construction, early (discretionary) about a 2-fold increase in energy savings effect becomes a significant drag on the replacements, regular replacements, and reduction in pollution for 2020, primary energy savings ofthe standard,
extra repairs, and remodels. Inthe new with progressively smaller differences which explains why the marginal heat construction market, the price ofair earlier. (ACEEE, No. 284 at pp. 9-10). rate is less than that attributed to new conditioning has dropped over time The standards analysis has used technology. Further, it is a bigger drag relative tohousehold income resulting marginal heat rates ralculeted by using on thebenefits ofpeaking end-use in a corresponding increase in a version ofEIA's N itional Energy efficiency improvements. These reduce saturation to its current value of Modeling System (I'EMS-ERS) 14 to peak demand more and slow investment approximately 80 percent. Because of translate enduse ele t,-iciiy savings to more because the rate ofnew thehigh saturation in the new primary energy savil gs. The marginal construction is heavily dependent on construction market, the purchase price heat rate is calculates by inposing a growth in peak demand. A more elasticity for the new housing market is load reduction to the appliait e end-use detailed discussion ofthis effect can be small relative to the early replacement being analyzed in NEM.S-BRS and found in Appendix M ofthe TSD. market. But although the price elasticity observing the change ,n prima!v energy 3 Fuel Switching is small, a decrease in shipments tothe use. As noted by ACEEE, the n trginal

new construction market will still be heat rates used in the central ai.- As discussed in the July 25 SNOPR, likely when equipment prices increase conditioning analysis are lower 'ban potential equipment switching from (as we expect to occur under a new expected. One would expect the central heat pumps to electric resistance efficiency standard). As aresult, for the air-conditioning marginal heat rate to be heating due to high heat pump prices

case ofa 13 SEER standard for split higher than those ofmore base load was cited as one ofthe reasons for not system air conditioners for example, appliances (like clothes washers or proposing a 13 SEER standard. The shipments to the new construction electric water heaters) because this energy savings resulting from 13 SEER market drop by approximately 3 peak-use appliance displaces more heat pumps would be eliminated ifonly percent. For comparison purposes, expensive, less efficient generation. a small fraction ofheat pump owners (4 shipments to the early replacement Further, this marginal displaced plant percent) switched to electric resistance market drop much more significantly should be not unlike the inefficient heating. See July 25 SNOPR, 66 FR (approximately 15 percent) as this plant in place today because most rapid 38836. market is far less saturated and the technological change occurs in the base ACEEE, NRDC, and NWPPC all resulting purchase price is much more load. The key to understanding this disagreed that more efficient heat pump elastic. With regard to the other market apparent paradox is that this conversion standards would cause consumers to segments, the regular replacement and rate does not represent a specific switch to electric resistance heating.
extra repair market price elasticities are marginal generator or combination of Both ACEEE and NRDC stated that if dependent on the age ofthe equipment generators, but is actually a conversion equipment switching was truly a in addition to price. Thus, the price factor that incorporates several concern, DOE should prevent such elasticity for a relatively new air simulated effects resulting from the action not by lowering heat pump conditioner is much more elastic than standard. efficiency standards, but by promoting that for a relatively old air conditioner. The primary reason as to why the revisions tobuilding energy codes to With regard to the remodel market marginal heat rate is lower than minimize the use of resistive heat. (otherwise known as the market ofstock expected is that the overall rate of (ACEEE, No. 284 at p. 14; NRDC, No. homes without air-conditioning), efficiency improvement ofthe power 250 at pp. 18-20). ACEEE adds that DOE historical data reveals that a relatively system with the standard in place is failed to account for the impact that low number ofnon-air conditioned slower than estimated by EIA in the electric resistance heating has on households purchase new air- AEO Reference Case. While there are consumer energy bills (nearly doubling conditioning equipment. Thus, like the many effects ofthe standard, DOE's average annual heating bills) in their early replacement market, the remodel analysis shows the two major assessment ofthe potential of market's price elasticity isrelatively components ofthe standard's impact on equipment switching. NWPPC claims sensitive to first cost increases. the power sector are: (1) The direct that DOE overstated the potential of

Because the price elasticities inthe equipment switching if split system heat shipments model are based on actual "EIA approves use ofthe name NEMS to pump SEER standards were set higher historical data, DOE has retained the describe only an AEO version ofthe model without than those for 

### split system air 

### historical data, DE has repainedo the any modification to code ordata.Because our 

### conditioners NWPPC states that the price elasticities developed for the analysis entails someminor code modifications and 

### conditioners. NWPPC states 

### that the central air conditioner and heat pump the model is run under various policy scenarios that 

### price difference between aheat pump standards analysis. deviate from AEO assumptions, the name NEMS- and an air conditioner at the same SEER BRS refers tothe model as used here. For more level is already very high 2. Heat Rates information on NEMS, please refer tothe National pproximately 1400). The extra price Energy Modelling System: An Overview 1998. DOE/ 

### (approximately $1400). 

### The extra price ACEEE asserts that DOE has severely EIAM-01 (98), February 1998. BRS isDOE's Office 

### associated with a more efficient heat underestimated the national energy ofBuilding Research and Standards. pump (approximately $150 between 13 

### EE-RM/STD-98-440

-**~t>'f** 

### Federal Register/Vol. 67. No. IOO/Thursday. May 23. 2002/Rules and Regulations 

### 36385

are assumedto decrease price elasticity. whichmakes sales volume less sensitive toprice increases. Over thepasttwenty years household saturation levels of central air-conditioninghave increased. primarily due to the steadyincreasein real household incomes. In

### order to capturethe effectthat increased equipmentprice andhousehold income have onequipment sales. the shipments model breaksthe air 

### conditioner market into the following segments: New construction. early (discretionary) replacements. regularreplacements. extra repairs. andremodels. In

### the new construction market. the price ofair conditioninghas dropped overtime relative to household incomeresulting ina correspondingincrease in saturationto its currentvalue of approximately 80 percent. Because of thehigh saturation inthe new construction market.thepurchaseprice elasticity for the newhousingmarket is small relative tothe earlyreplacement market. But althoughthe price elasticity is smaH. a decrease in shipments to the

new construction market will stillbe likely when equipmentprices increase (as we expectto occurundera new efficiency standard). As a result. for the

case ofa 13 SEER standard for split system air conditioners for example. shipmentsto the newconstruction market dropbyapproximately 3 percent. Forcomparison purposes. shipmentsto the earlyreplacement market drop much more significantly (approximately 15 percent) as this market is far less saturated and the resulting purchaseprice is much more elastic. With regard to the othermarket segments. the regular replacement and extra repair marketpriceelasticities are dependent on the age ofthe equipment in addition to price. Thus. the price elasticity for a relatively newair conditioner is 

### muchmore elasticthan that for a relatively old air conditioner. Withregardtotheremodel market (otherwise known as the market ofstock homes without air-conditioning). historical data reveals that a relatively lownumber ofnon-air conditioned households purchase new airconditioningequipment. Thus. like the earlyreplacementmarket. the remodel market's price elasticity isrelatively sensitive to first costincreases.

Becausethe price elasticities inthe shipments model arebased onactual historical data. DOE hasretainedthe price elasticities developed for the central air conditionerandheatpump standardsanalysis.
2. Heat Rates

ACEEE asserts thatDOE has severely underestimatedthe national energy savingsresulting from more efficient standards dueto the marginal heat rates whichwere used to convert electrical energy savings atthe site (i.e.• 

### at the household orcommercialbuilding) into fuel savings atthesource (i.e.• 

### atthe powerplant). ACHEE contendsthatthe value assumed by DOE in 2018 and beyond (5519 BtuIkWh) is wellbelow theheatrate estimates providedbyEIA (e.g.• 9617 Btu/kWhin 2020). Using the EIA heatrate estimate wouldleadto about a 2-fold increase in energy savings andreduction inpollution for 2020. withprogressively smallerdifferences earlier. (ACEEE. No. 284 at pp. 9-10).

The standards analysis has used marginal heat rates'.dlculf'tedby using

a version ofEIA's Nltional Energy Modeling System (1' 

### EMS-I::RS) 14 

### to translate enduse ele ':tdcii.y ;avings to primaryenergy savil gs. The marginal heatrate is calculate, 'Jy imposing a load reductionto the applia'lle end-use being analyzed inNE.V18-Bl\S and observing the change .n**prim~** V

### energy use. As notedby ACEEE. the**,~** 

### Ifginal heatrates used inthecentral ai.- conditioning analysis are )ower**~an** 

### expected. One would expeo::t the central air-conditioning marginal**h~at** 

### Tdte to be higherthanthose ofmorebase load appliances (like clothes washers or electric waterheaters) becausethis peak-use appliance displaces more expensive. less efficient generation. Further. this marginal displaced plant shouldbenotunlikethe inefficient plantinplace todaybecause most rapid technological change occurs inthebase load. The key to understandingthis apparent paradox is thatthis conversion rate does notrepresent a specific marginal generator orcombination of generators.butisactuaHy a conversion factor that incorporates several siInulated effects resulting from the standard.

Theprimary reason as to whythe marginal heatrate is lowerthan expected is thatthe overall rate of efficiency improvement ofthe power system withthe standardinplace is slowerthan estimatedbyEIA in the AEO Reference Case. While there are many effects ofthe standard. DOE's analysis shows thetwo major components ofthe standard's impact on the powersector are: (1) The direct

" ElA approves use ofthe 1IlIJIl8 NEMS to dascribe only an AEO version ofthe model without anymodification to code or data. Because our analysis entails some minorcode modifications and the model is run undervarious policy scenarios that deviate from AEO assumptions, the name NEMSBRS refers to the model as used here. Formore information on NEMS, pleaserefer to the National Energy Modelling System: An Overview 1998. DOEI ElA-{)S81 (98), February 1998. BRS is DOE's Office ofBuilding Research andStandards. 

### reduction infuel burnedinpower plants and (2) the indirect effect whereby the slowing ofelectricity demand growth slows new investment, thereby impedingtherate ofoverall improvement in power sectorefficiency. While this lattereffect would seem to be trivial relative to the first, it grows significantly over time because fewer and fewer ofmore efficient generating plantsare added to thepower system. By the end ofthe forecast period, this effect becomes a significant drag on the primaryenergy savings ofthe standard, which explains whythe marginal heat rate is less than that attributed to new technology. Further, it

### is a bigger drag

onthebenefits ofpeaking end-use efficiency improvements. These reduce peak demandmore and slow investment

more because the rate ofnew construction is heavily dependent on growth in peak demand. A more detailed discussion ofthis effect can be found inAppendix M ofthe TSD.
3. Fuel Switching

As discussed inthe July 25 SNOPR, potential equipment switching from heat pumpsto electric resistance heating dueto high heat pump prices
was cited as one ofthe reasons for not proposing a 13 SEER standard. The energy savings resulting from 13 SEER heat pumpswouldbe eliminated ifonly

a small fraction ofheat pump owners (4 percent) switchedto electric resistance heating. See 

### July 25 SNOPR, 66 FR 38836.

ACEEE, NRDC. and NWPPC all disagreed that more efficient heat pump standards would cause consumers to switchto electricresistance heating. BothACEEE andNRDC stated that if equipment switchingwas truly a concern. DOE should prevent such action notby loweringheat pump efficiency standards. butby promoting revisions to building energy codes to minimize the use ofresistive heat. (ACEEE. No. 284 at p. 14; NRDC, No. 250 at pp. 18-20). ACEEE adds that DOE failed to account for the impact that electricresistance heating has on consumer energybills (nearly doubling average annual heatingbills) in their assessment ofthe potential of equipment switching. NWPPC claims that DOE overstated the potential of equipment switching if

### split system heat pump SEER standardswere set higher thanthose for split system air conditioners. NWPPC statesthat the price difference between a heat pump and an air conditioneratthe same SEER level is already very high (approximately $1400). The extra price associated with a more efficientheat pump (approximately $150between 13

## EE-RM/STD-98-440-.3.

36386 Federal Register/Vol. 67, No. 100/Thursday, May 23, 2002/Rules and Regulations

and 12 SEER) is not enough to alter this information inpromulgating the 13 supplying the manufacturers with the

consumer purchase decisions. (NWPPC, SEER standard on January 22, 2001. The necessary pieces to assemble non-HCFCNo. 287 at p. 3). TSD shows thatthe burden on based heat pumps and air conditioners.

York agrees with DOE thatthere is manufacturers dueto all otherrecent or With regard to the costs to be incurred potential for equipment switching ifthe imminent Federal regulations exceeds by the industry to comply with Clean standards for heat pumps are set too $479 million. DOE estimates the 13 Air Act amendments for coating large high. York states that thehigher price SEER amendments to the standards for appliances, ACEEE asserts that much associated with more efficient heat central air conditioners and heat pumps more data are needed before any pumps would force consumers to would contribute upto anadditional definitive estimates can be made. choose either resistance heat and the $303 million in manufacturer costs, (ACEEE, No. 284 atpp. 11-13; NRDC, resulting higher utilitybills, or fossil bringing thetotal cumulative regulatory No. 250 at pp. 13-14). fuel furnaces that may have to operate burden to ashigh as $782 million. In Counter tothe above arguments, ARI

on higher cost fuels with more volatile light ofthatheavy burden,the July 25 states that DOE is correct to give greater prices such as oil orpropane. (York,No. SNOPRproposed 12 SEER standards weight to cumulative burden. ARI 270 at pp. 3-4). thatDOE estimates will reduce the asserts thatthe cost impacts due to

As stated in theJanuary 22 final rule, expected financial burden on cumulative regulatory burdens will

a significant number ofhouseholds use manufacturers from all new Federal and exceed DOE's estimate of $479 million. electric resistance heat, indicating the Stateregulations by $144 million ARI notes that various additional potential for equipment switching from compared to the 13 SEER final rule )f burdens to the industry were not heat pumps to resistance heat. See 66 January 22. ,'uantifiedby DOE including: (1) FR 7180. Based on data from the 1997 ACEEE, NRDC, and EPA all argue, I ecently revised DOE efficiency RECS, a littleover 14 percent of thatDOE overestimated the impacts o standards for room air conditioners; (2) households with room or central air the industry due to cumulative or-going DOE review of possible new conditioning have either baseboard or regulatory burden. EPA focused on tl e iiiiimum efficiency standards for forced air electric resistance heating impacts due to the phase out ofHCFC- resdential furnaces; (3)DOE's adoption compared to almost 10percent of 22 (the hydrochlorofluorocarbon used a. oi's'andard levels related to ASHRAE households which have heat pumps. arefrigerant) and cited its own analysis 90.1 -1999 (American Society of The fact that such a large percentage of as well as an estimate from Goodman Heat:ng, Refrigerating and Airhouseholds currently use a combination Manufacturing to claim that DOE's ConQitioning Engineers, Inc., Standard ofcentral orroom air-conditioning with estimate of$50 million per company is 90.1 as revised in October 1999); (4) resistance heat to meet their space- at least twice as high as warranted based F.PA's Metal Products and Machinery conditioning needs supports DOE's on prior industry transitions and more (MP&M) effluent guidelines and view that there is a real possibility that recent trends. Referring to the costs standards; and (5)EPA's allowance

some purchasers would choose to incurred bythe refrigerator industry in system for controlling production, switch to resistance heat from heat themid-1980's to convert from CFCsto import, and export ofHCFCs. ARI states pumps rather than pay the consumer HCFCs, EPA suggests that amore that DOE's own estimate that a 12 SEER prices associated with 13 SEERheat reasonable estimate to phase out HCFC- standard would have $144 million less
pumps. DOEhas not attempted to 22 is $20 to $30 million per company. cumulative burden than a 13 SEER estimate the number of consumers that EPA also cites Goodman's estimate that standard warrants adoption ofa 12 might actually switch from heat pumps the combined cost ofmeeting a 13 SEER SEER standard. (ARI, No. 259 at pp. 10-
to resistance heating. Rather, DOE has standard and transitioning from HCFC- 13). determined that a mere 4 percent ofheat 22 is approximately $25 million per In reaching its conclusion on pump households would need to switch company, halfofDOE's $50 million manufacturer impacts, DOE considered to central airconditioners and electric estimate forjust converting to a new the cumulative regulatory cost imposed resistance heating to negate the energy refrigerant. (EPA, No. 276 at pp. 2-4). on air conditioner manufacturers under

savings achieved fromincreasing the Because the industry has known for the various standards scenarios, hsavings t tandad from 1increag t4 well over adecade ofthe impending including manufacturers' investment to heat to pump staar7 fHSP. B use E 4 phase out ofHCFC-22, both ACEEE and meet the new standard. As noted above, HSPF to 13 SEERl 7.7 HSF. Becausem NRDC claim thatthe costs for DOE estimated the cumulative such a small fraction of heat pump 

### sucha small fraction ofheat pumpe i converting to a newrefrigerant should regulatory impacts on manufacturers to

owners would need to switch to electric be lower than DOE's estimate. ACEEE likely exceed $782 million ifa 13 SEER resistance heating to negate the energy states that DOE seems to treatthe costs standard were adopted. This includes savings realized from 13 SEERheat ofredesign for efficiency and redesign the $303 million reduction in industry pumps,DOE believes the possibility of pumps, DOEbelieves the possibility o forrefrigerants as additive, as though value dueto a 13 SEER standard and equipment switching is real enough to manufacturers would first redesign for $479 million in other regulatory warrant its inclusion as a factor efficiency (2006) and then for burdens, including costs associated with supporting a 12 SEER/7.4 HSPF replacement refrigerants (2010). ACEEE theHCFC phase out. It does not include standard. believes this assumption would be other major Federal and State D.ImpactonManufacturers demonstrably false as there is every regulations thatwe listed but did not
reason to accomplish the two goals with quantify. 1. Cumulative Regulatory Burden a single re-engineering effort, both The comments submitted by ACEEE,

DOE considers that a standard level is saving capital and improving time-to- NRDC, and, in particular, EPA do not not economically justified ifit market. ACEEE adds that since there is address the cumulative manufacturer contributes to an unacceptable already fairly widespread use ofan impacts. Rather, the comments were cumulative regulatory burden. The TSD alternative refrigerant, R-410A, this limited to manufacturer's investment contains information on cumulative strongly suggests that component required to transition away from HCFC regulatory burden (section 8.6 ofthe manufacturers ofcompressors, coils, refrigerant. DOE's estimated $50 million TSD), although as previously discussed, valves, lubricants, and all other critical per company investment to comply with DOE did notexplain how it considered components are already geared up and the HCFC phase out wasbased on 

### EE.RM/STO.9S-44o-:3Dtf
36386 Federal Register/Vol. 67, No. 100/Thursday, May 23, 2002/Rules and Regulations

and 12 SEER) is not enough to alter

consumerpurchasedecisions. (NWPPC, No. 287 at p. 3).

York agrees with DOE thatthere is potential for equipment switching ifthe standards for heat pumps are settoo high. York statesthatthe higherprice associated with more efficient heat pumps would force consumersto choose eitherresistanceheat andthe resultinghigher utilitybills, orfossil fuel furnaces thatmay have to operate
onhigher costfuels with more volatile prices such as oil orpropane. (York, No. 270 at pp. 3-4).

As stated intheJanuary 22 final rule,

a significantnumber ofhouseholds use electric resistance heat, indicatingthe potential for equipment switching from heat pumpstoresistance heat. See 66 

### FR 7180. Based on data from the 1997 RECS, a little over 14 percent of households with room orcentral air conditioninghave eitherbaseboard or forced air electricresistanceheating compared to almost 10percent of households whichhaveheat pumps. The fact that such a large percentage of households currently use a combination ofcentral orroom air-conditioning with resistanceheatto meettheir spaceconditioningneeds supports DOE's viewthat there is a real possibility that

some purchasers wouldchooseto switch to resistance heat from heat pumpsratherthan pay the consumer prices associated with 13 SEER heat pumps. DOE has not attempted to estimatethe numberofconsumers that might actually switch from heatpumps toresistance heating. Rather, DOE has determined that a mere 4 percent ofheat pumphouseholdswouldneed to switch to central air conditioners and electric resistance heatingto negate the energy savings achieved from increasingthe heat pump standard from 12 SEERl7.4 

### HSPF to 13 SEERl7.7 HSPF. Because sucha small fraction ofheatpump
owners would needto switch to electric resistance heatingto negate the energy savings realized from 13 SEERheat pumps,DOEbelieves thepossibility of equipment switchingisreal enough to warrant its inclusion as a factor supporting a 12 SEER/7.4 HSPF standard.
D. 

### Impact on Manufacturers
1. CumulativeRegulatory Burden

DOE considers that a standard level is not economicallyjustified ifit contributes to anunacceptable cumulativeregulatory burden. TheTSD contains information on cumulative regulatory burden (section 8.6 ofthe TSD), although as previouslydiscussed, DOE didnotexplain howitconsidered this information inpromulgatingthe 13 SEER standard onJanuary 22, 2001. The TSD shows thattheburden on manufacturers dueto all otherrecent or imminentFederal regulations exceeds $479 million. DOE estimates the 13 SEER amendments to the standards for central air conditioners andheat pumps wouldcontribute upto anadditional $303 million inmanufacturer costs, bringingthetotal cumulativeregulatory burdento ashigh as $782 million. In light ofthatheavy burden, theJuly 25 SNOPRproposed 12 SEER standards thatDOE estimates will reduce the expected financial burden on manufacturers from all new Federal and Stateregulationsby $144 million compared to the 13 SEER final rule )f January 22.

ACEEE, NRDC, andEPA all argue. l thatDOE overestimatedthe impacts 0 

### the industry dueto cumulative regulatory burden. EPA focused on

### t1 e impacts dueto the phase out ofHCFC

.... 22 (the hydrochlorofluorocarbon used a.l

a refrigerant) andcited its own analysis

as well as an estimate from Goodman Manufacturing to claimthat DOE's estimate of$50 millionpercompany is at leasttwice as high as warranted based

onprior industry transitions and more recenttrends. Referring to the costs incurred by therefrigerator industry in themid-1980'S to convertfrom CFCs to HCFCs, EPA suggests that a more reasonable estimateto phase out HCFG22 is $20 to $30million per company. EPA also cites Goodman's estimate that the combined cost ofmeeting a 13 SEER standard andtransitioningfrom HCFG22 is approximately $25 million per company, halfofDOE's $50 million estimate forjustconvertingto a new refrigerant. (EPA, No. 276 at pp. 2-4).

Becausethe industryhas mownfor well over a decade ofthe impending phaseout ofHCFG-22, both ACEEE and NRDC claimthatthe costs for convertingto a newrefrigerant should be lowerthan DOE's estimate. ACEEE statesthatDOE seems to treat the costs ofredesign for efficiency and redesign for refrigerants as additive, as though manufacturers wouldfirst redesign for efficiency (2006) and then for replacementrefrigerants (2010). ACEEE believes this assumption wouldbe demonstrably false as there is every
reason to accomplishthe two goals with

a singlere-engineering effort, both saving capital andimprovingtime-tomarket. ACEEE addsthat since there is already fairly widespread use ofan alternativerefrigerant, R-410A, this strongly suggests that component manufacturers ofcompressors, coils, valves, lubricants, and all other critical components are already geared up and supplyingthe manufacturers with the necessary piecesto assemble non-HCFCbased heat pumps and air conditioners. With regard tothe costs to be incurred by the industry to complywith Clean Air Act amendments for coating large appliances, ACEEE asserts that much

more data are needed before any definitive estimates can be made. (ACEEE, No. 284 at pp. 11-13;NRDC, No. 250 at pp. 13-14).

Counter to the above arguments, ARI states thatDOE is correct to give greater weight to cumulativeburden. ARI asserts thatthe cost impacts due to cumulativeregulatory burdens will exceedDOE's estimate of$479 million. ARI notes that various additional ryurdens to the industry were not ('uantifiedbyDOE including: (1) 

### Fecently revised DOE efficiency st:tndards for room air conditioners; (2) or.-going DOE review ofpossible new I.'ll'limum efficiency standards for rus:dential furnaces; (3) DOE's adoption

ors'andard levels related to ASHRAE 90.1 -1999 (American Society of HeaLng, Refrigerating and AirConaitioningEngineers, Inc., Standard 90.1 as revised inOctober 1999); (4)**~PA'3** 

### Metal Products and Machinery (MP&M) effluentguidelines and standards; and (5) EPA's allowance system for controlling production, import, andexport ofHCFCs. ARI states thatDOE's ownestimate that a 12 SEER standard would have $144 million less cumulativeburden than a 13 SEER standard warrants adoption ofa 12 SEER standard. (ARI, No. 259 at pp. 10- 13).

In reaching its conclusion on manufacturer impacts, DOE considered the cumulative regulatory cost imposed

on air conditioner manufacturers under the various standards scenarios, including manufacturers' investmentto meetthe new standard. As noted above, DOE estimatedthe cumulative regulatory impacts onmanufacturers to likely exceed $782 million ifa 13 SEER standard were adopted. This includes the $303 million reduction in industry value due to a 13 SEER standard and $479 million in other regulatory burdens, including costs associated with theHCFC phase out. It

### does not include other major Federal and State regulations thatwe listedbutdid not quantify.

The comments submitted by ACEEE, NRDC, and, inparticular, EPA do not address the cumulative manufacturer impacts. Rather, the comments were limitedto manufacturer's investment requiredto transition away from HCFC refrigerant. DOE's estimated $50 million per company investmentto comply with the HCFC phase outwasbased on

## EE-RM/STD-98-440- 

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Federal Register/Vol. 67, No. 100/Thursday, May 23, 2002/Rules and Regulations 36387

interviews with all seven major air conversion. In contrast, replacing air that manufacturers would already have conditioner manufacturers during 1998 conditioner compressors, whose voluntarily converted. In fact, hardware and 1999 when the firms were asked efficiencies are already close to cost increases are readily identifiable specific questions regarding the costs of thermodynamic limits, with higher and the higher cost HFC refrigerant replacing HCFCs in their equipment. In efficiency units to offset the impact of alone will add $20 to $30 to the direct contrast, ICF Consulting, in its analysis refrigerant related efficiency loss is not manufacturing cost ofeach unit. for the EPA, refers to mid-1980's a viable option. Finally, there are fewer Therefore, it is highly likely that one or estimated costs associated with phasing models in a typical appliance more manufacturers will opt to use CFCs out of the refrigerator industry, manufacturer's refrigerator product line HCFC-22 in the majority oftheir without explaining the link between than the number of residential central product line between 2006 and 2009. In those costs estimates and ICF's air conditioner and heat pump models that situation, the resulting cost estimated $20 to $30 million per (multiple efficiency level products) advantage will force the other
company to phase HCFCs out ofthe air produced by a typical unitary air manufacturers to follow suit to remain conditioner industry. conditioner manufacturer. As a result, competitive and avoid market share

DOE believes that the costto convert significantly more redesign and product loss. While most manufacturers produce from CFC refrigerants used in validation is necessary for the unitary 12 and 13 SEER HFC air conditioners, residential refrigerators is substantially air conditioner manufacturers to convert they are typically low volume products less than the cost to convert from their product lines and production from and the tr oling 'or full scale mass HCFC-22 refrigerant used in central air R-22 to either ofthe HFC blends. productic n does not exist. To increase conditioners and heat pumps. For ACEEE states that the rational production of 12 SEER or 13 SEER example, compressor capacity and approach to meeting the two regulatory units, mai rfactr .rswill need
power input for central air conditioners requirements-new efficiency levels in expanded ooling ,o produce those and heat pumps is an order of 2006 and the phase out ofHCFCs in models. T( obtain -he least cost, magnitude larger than compressor 2010-isto do so simultaneously, rather manufacturers will need to use designs capacity and power input needed for than sequentially, 3 to 4 years apart. If that are betee; optimized for mass home refrigerators (2 to 5 horsepower both changes could be accomplished production. C3nseqi ently, DOE believes for central air conditioners versus one- simultaneously, the investment would that much oftie red1 sign, validation, quarter horsepower for home indeed be less than the cost ofmaking and retooling effort frced by the refrigerators). For this reason alone, the two changes separately. Although industry is likely to happen once for significantly higher conversion costs the characteristics ofthe new efficiency standards in 2006 and a would be expected. Further, central air refrigerant, with significantly higher second time for ti, HCFC phase out in conditioner or heat pump components operating pressures, will add to the 2010. (compressors, coils and air handlers) scope and cost ofthe development effort 2. Financial Burdens Associated With comprise almost the entire product cost. for the increased efficiency product New Efficiency Standards In contrast, over 50 percent ofthe cost families, in principle, product ofa home refrigerator is embodied in validation testing and retooling would As explained in the July 25 SNOPR such non-refrigerant components as the occur only once, saving substantial (66 FR 38829), the 13 SEER standards in insulated cabinet, shelves and other resources. the January 22 final rule were projected storage components, and other The difficulty with this scenario is the by the TSD to result in a negative cash accessories such as icemakers and competitive reality of the industry. flow for the industry in the year through the door ice and drink Competition in the U.S. air conditioning preceding the new standards' dispensers. industry is especially vigorous, with enforcement. Moreover, DOE's analysis

DOE also believes refrigerant related seven major manufacturers competing shows that 13 SEER standards would design changes will result in greater for business. Consumers have benefitted impose far greater financial burdens on impact on the overall product cost and significantly from this, with real manufacturers whose operating costs competitive position for air conditioner (inflation adjusted) prices having fallen exceed the industry average. Those manufacturers than will be the case for steadily over the past 20 years, even manufacturers typically engage in more refrigerator manufacturers. Since HFC- during periods ofrapid market growth. research and development or provide 410A refrigerant operates at In addition, this level ofcompetition in additional sales or service support than substantially higher operating pressures the domestic industry has provided no do their lower operating cost than HCFC-22 refrigerant, a major opportunity for foreign competition to competitors. Consequently, DOE system redesign is necessary with HFC- displace main line HVAC products, proposed the 12 SEER standard to 410A refrigerant to take advantage ofthe preserving traditional manufacturing reduce the maldistribution of financial beneficial aspects ofthe 40 to 50 percent jobs in the U.S. impacts on manufacturers and allow higher pressure and to minimize any In 2006, in this environment of manufacturers to maintain a positive deleterious effects. With the alternative vigorous competition, each cash flow. replacement refrigerant HFC-407C, manufacturer will be faced with the Trane concurred with DOE's action to system efficiency isreduced by 5 to 10 choice ofproducing a cost optimized reduce the maldistribution offinancial percent compared to use ofHCFC-22 product line using HCFC-22 refrigerant impacts on manufacturers. Trane refrigerant in the same system. or ofalso making the additional asserted that as efficiency is increased, Significant resizing and reconfiguring of investment to convert to an HFC a larger commodity market is created. components is required to restore refrigerant, combined with meeting the This in turn reduces the market efficiency levels. increased efficiency standard level. It is opportunities for companies that focus

Replacing CFC-12 refrigerant in clear that either HFC blend (R-407C or on value-added systems and services. refrigerators with HFC-134a refrigerant R-410A) will result in increased Thus, the "volume" manufacturers (i.e., reduces system efficiency by only 1to product cost (at comparable efficiency lower operating cost manufacturers) 2 percent, which is easily offset by and performance level). If HFC benefit disproportionately. Trane also higher the higher efficiency compressors refrigerant use would result in lower noted that under a 13 SEER standard, available at the time of CFC to HFC cost compared to HCFC-22, it is likely manufacturers who invest heavily in 

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interviews with all seven major air conditioner manufacturers during 1998 and 1999 when the firms were asked specific questions regardingthe costs of replacing HCFCs intheir equipment. In contrast. rCF Consulting. in its analysis for the EPA. refers to mid-1980's estimated costs associated with phasing CFCs out ofthe refrigerator industry, without explainingthe 

### linkbetween those costs estimates and ICF's estimated $20 to $30 million per companyto phase HCFCs out ofthe air conditioner industry.

DOE believes that the costto convert from CFC refrigerants used in residential refrigerators is substantially

, less than the cost to convert from

HCFC-22 refrigerant used in central air conditioners and heat pumps. For example, compressor capacity and power input for central air conditioners and heat pumps is an order of magnitude larger than compressor capacity and power input needed for home refrigerators (2 to 5 horsepower for central air conditioners versus onequarter horsepower for home refrigerators). Forthis reason alone. significantly higher conversioncosts wouldbe expected. Further, central air conditioner or heat pump components (compressors, coils and air handlers) comprise almost the entire product cost. In contrast, over 50 percent ofthe cost ofa homerefrigerator is embodied in such non-refrigerant components as the insulated cabinet, shelves and other storage components, and other accessories such as icemakers and through the door ice and drink dispensers.

DOE also believes refrigerant related design changes will result in greater impact on the overall product cost and competitive position for air conditioner manufacturers than will be the case for refrigerator manufacturers. Since HFC410A refrigerant operates at substantially higher operating pressures than HCFC-22 refrigerant, a major system redesign is necessary with HFC410A refrigerant to take advantage ofthe beneficial aspects ofthe 40 to 50 percent higher pressure and to minimize any deleterious effects. With the alternative replacement refrigerant HFC-407C, system efficiency is reducedby 5to 10 percent compared to use ofHCFC-22 refrigerant inthe same system. Significant resizing andreconfiguring of components is requiredtorestore efficiency levels.

Replacing CFC-12 refrigerant in refrigerators with HFC-134a refrigerant reduces system effiCiency by only 1 to 2 percent, which is easily offset by higher the higher efficiency compressors available at thetime ofCFC to HFC conversion. In contrast, replacing air conditioner compressors, whose efficiencies are already close to thermodynamic limits, with higher efficiency units to offset the impact of refrigerant related efficiency loss is not
a viable option. Finally, there are fewer models in a typical appliance manufacturer's refrigerator product line than the number ofresidential central air conditioner and heat pump models (multiple efficiency level products) producedby a typical unitary air conditioner manufacturer. As a result, significantly more redesign and product validation is necessary for the unitary air conditioner manufacturers to convert their product lines and production from R-22 to either ofthe HFC blends.

ACEEE states that the rational approach to meeting the two regulatory requirements-new efficiency levels in 2006 and the phase out ofHCFCs in 201D-is.to do so simultaneously, rather than sequentially, 3 to 4 years apart. 

### If both changes couldbe accomplished simultaneously, the investment would indeed be less than the cost ofmaking thetwo changes separately. Although the characteristics ofthe new refrigerant, with significantly higher operating pressures, will add to the scope and cost ofthe development effort for the increased efficiency product families, in principle, product validation testing andretooling would

occur only once, saving substantial

resources.

The difficulty withthis scenario is the competitive reality ofthe industry. Competition in the U.S. air conditioning industry is especially vigorous, with

seven major manufacturers competing for business. Consumers have benefitted significantly from this, with real (inflation adjusted) prices having fallen steadily over the past 20 years, even during periods ofrapid market growth. In addition, this level ofcompetition in the domestic industry has provided no opportunity for foreign competition to displace main line HVAC products, preservingtraditional manufacturing jobs in the U.S.

In 2006, in this environment of vigorous competition, each manufacturer will be faced with the choice ofproducing a cost optimized product line usingHCFC-22 refrigerant or ofalso making the additional investmentto convertto anHFC refrigerant, combined with meeting the increased effiCiency standard level. Itis clearthat eitherHFC blend (R-407C or R-410A) will result in increased product cost (at comparable efficiency and performance level). 

### IfHFC refrigerant use would result inlower cost compared to HCFC-22, it is likely that manufacturers would already have voluntarily converted. In fact, hardware cost increases are readily identifiable and the higher cost HFC refrigerant alone will add $20 to $30 to the direct manufacturing cost ofeach unit. Therefore, it is highly likely that one or
more manufacturers will opt to use HCFC-22 in the majority oftheir product line between 2006 and 2009. In that situation, the resulting cost advantage will force the other manufacturers to follow suit to remain competitive and avoid market share loss. While most manufacturers produce 12 and 13 SEER HFC air conditioners, they are typically low volume products and the t( oling 'orfull scale mass producti( n does not exist. To increase productio, of 12 3EER or 13 SEER units, mal dact.n**~rs** will need expanded ooling ,0 produce those models. T( obtain -he least cost, manufactu,'e"s will need to use designs that are betie;' optimized for mass production. C'mse'll entiy, DOE believes that much oftne**re~ksign,** validation, and retooling effort frced by the industry is likelY to h'lppen once for efficiency stand(\rds in 2006 and a second time for U;.P. BCFC phase out in 2010.
2. Financial Burdens Associated With New Efficiency Standards

As explained in the July 25 SNOPR (66 FR 38829), the 13 SEER standards in theJanuary 22 final rule were projected by the TSD to result in a negative cash flow for the industry in the year preceding the new standards' enforcement. Moreover, DOE's analysis shows that 13 SEER standards would impose far greater financial burdens on manufacturers whose operating costs exceed the industry average. Those manufacturers typically engage in more research and development or provide additional sales or service supportthan do their lower operating cost competitors. Consequently, DOE proposed the 12 SEER standard to reduce the maldistribution offinancial impacts on manufacturers and allow manufacturers to maintain a positive cash flow.

Trane concurred with DOE's action to reduce the maldistribution offinancial impacts on manufacturers. Trane asserted that as efficiency is increased,

a larger commodity market is created. This in turn reduces the market opportunities for companies that focus

on value-added systems and services. Thus, the "volume" manufacturers (i.e., lower operating cost manufacturers) benefit disproportionately. Trane also noted that under a 13 SEER standard, manufacturers whoinvest heavily in

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research and development (R&D) would the technologies required to comply opportunity to unseat large but slowdedicate less funding to innovative with the standard are conventional and adapting competitors. (NRDC, No. 250 at programs, resulting in the entire well known. (OOE, No. 275 at p. 3; p. 31). 

### industry focusing on the development of Goodman, No. 269 at p. 3; ACEEE, No. BothARI and Rheem agree with the designs that address the absolute lowest 284 atp. 7). Goodman specifically states Department ofJustice's statements commodity product. Trane's opinion that the only difference between a 10 regarding small manufacturers. Rheem

was shared by Equipment Distributors. SEER, 12 SEER, and 13 SEERunits is a states that small manufacturers will (Trane, No. 262 at pp. 2-4, 13-14; little more copper and aluminum used most likely not be able to afford the Equipment Distributors, Inc., No. 266 at in manufacturing different sized coils. redesign and retooling oftheir
p. 1). DOE believes it is erroneous to equipment and manufacturing facilities

NRDC disputed DOE's interpretation conclude from the fact that technologies to meet the 13 SEER standard. ARI ofthe financial impacts to required to comply with standards are quotes DOE's TSD in stating that "small manufacturers by pointing outthat conventional andwell known thatit is manufacturers engaged in the DOE's own analysis undercuts the atrivial exercise toincrease production production ofconventional equipment contention that the industry is impacted volumes to a level capable ofsatisfying would find it difficult to overcome the

more severely under a 13 SEER the entire U.S. demand for air financial and technical burdens standard. Referring to the TSD, NRDC conditioners. Sales of 13 SEER associated with the transition, and


### notes that undertwo different scenarios equipment and higher are only 3 could decide to exit the m rket." (ARI, (NAECA and Roll-up) lowering the percent ofall equipment sold and large No. 259 at pp. 10-11; Rhe m, Nc. 248 standard from 13 to 12 SEER actually investments would berequired to at p. 3). increases the burden to the industry (as convert all production tothese levels. With regard tothe main fatiure: sof measured by the industry netpresent Furthermore, as previously described, equipment for the manufa, tured value). (NRDC, No. 250 at pp. 20-22). much ofthe industry's financial health housing industry, both AR and

DOE disagrees with this comment. In today depends on sales of 12 SEER Goodman agree that produ -tsfor its interpretation ofmanufacturer equipment. markets like manufactured housing, impacts, NRDC overlooks the important S l Mnufact s where space constraints limit efficieicy role thatthe efficiency mix assumptions 3 Sma Manuacturersgains achieved with conventional play in the financial projections. In The issue ofhow higher efficiency technology, should be granted an Section 8.4.8 ofthe TSD, we described standards impact small manufacturers exemption fromhigher efficiency the dynamics by which the profits of also drew several comments. The standards. (ARI, No. 259 at p. 8; manufacturers with higher operating Department ofJustice's April 5, 2001, Goodman, No. 269 at p. 3).
costs depend on the sale ofpremium letterto DOE regarding the potential The Department ofJustice's concerns products, and how those products are effect on competition ofnew central air relate to disproportionate impacts on differentiable only at efficiency levels conditioner and heat pump efficiency small manufacturers. Most small higher than the baseline. The closer the standards stated that some small manufacturers produce only indoor baseline unit is to thetechnological manufacturers would be coils or niche product lines. For small limit, the fewer consumers will "buy disproportionately impacted under a 13 manufacturers who produce coils only, up" to a higher efficiency. For more and SEER standard, and noted that 100 there are no intensive incremental

more consumers, the baseline will be percent oftheir current product line technological or capital requirements for the cost-effective option, and those would fail to comply with the new them to increase the efficiency oftheir

consumers who wish to "buy up" will efficiency requirement. The Department products and DOE does not expect them have fewer options and less financial ofJustice also stated that manufacturers to face any incremental burden as a incentive to do so. For these reasons, ofequipment for space-constrained result ofthe new standards. However, DOE assumed the Roll-up efficiency installation sites (such as manufactured DOE has documented that scenario to bethe most probable for 13 housing) would alsobe manufacturers ofniche air conditioning SEER standard levels and theNAECA disproportionately impacted by a 13 products, such as through-the-wall efficiency scenario most probable at 12 SEER standard (DOJ, No. 285 printed in equipment and small duct, high velocity SEER standard levels. Theresulting Appendix ofthis notice). systems, face special technological and cumulative change in industry net Goodman asserted thatmoving to a 13 financial considerations compared to present value (NPV) is negative $300 SEERwould not be ahardship to small those faced bythe major air conditioner million at 13 SEER levels compared to manufacturers. Goodman claims that 13 producers. Consequently, new negative $199 million at 12 SEER levels. SEERtechnology has been available to efficiency standards could be more

NRDC's interpretation of both large and small manufacturers for detrimental to the financial situation of manufacturer impacts also overlooks approximately 15 years. Goodman also niche product manufacturers than of short-run cash flow impacts ofthe points to the factthat Goettl Air major manufacturers. Technical standards. While NPV is useful for Conditioning, a small manufacturer considerations are typically more evaluating thelong-term effects ofnew based in Arizona, supports the 13 SEER important for certain niche standards, short-term changes in cash standard. (Goodman, No. 269 at p. 3). manufacturers than for major floware also important indicators ofthe PG&E concurs with Goodman's manufacturers and have more severe industry's financial situation. The statements. (PG&E, No. 274 at p. 4). consequences related to increased annual cash flow impacts at 13 SEERare NRDC asserts that higher efficiency production costs or loss ofsales volume $31 million more than at 12 SEER and standards encourage competition by due to increased price. Overall, if
turn theabsolute cash flow negative. shaking up the cozy arrangements that provisions were not made in the Depressed cashflow can strain the thebigger companies have drifted into, standard for niche products that face industry's accessto capital or cause requiring manufacturers eitherto invest severe technological constraints, we investors to flee. inbuilding new components orto would expect their impacts to be

OOE, Goodman, and ACEEE all claim purchase new components from other disproportionate to those on the thatthe industry impacts due to 13 suppliers. They claim that this provides industry as a whole. In today's rule, SEER standards cannot be too severe as smaller, nimble manufacturers an DOE is establishing separate product 

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research and development (R&D) would dedicate less funding to innovative programs, resulting inthe entire industry focusing on the development of designs that address the absolute lowest commodity product. Trane's opinion

was sharedbyEquipment Distributors. (Trane, No. 262 at pp. 2-4, 13-14; EquipmentDistributors, Inc., No. 266 at p.l).

NRDC disputed DOE's interpretation ofthe financial impacts to manufacturers bypointing outthat OOE's ownanalysis undercutsthe contentionthatthe industry isimpacted

more severely undera 13 SEER standard. Referring to theTSD, NRDC notes thatundertwo different scenarios (NAECA and Roll-up) loweringthe standardfrom 13 to 12 SEER actually increases theburdentothe industry (as measuredbythe industry net present value). (NRDC, No. 250 at pp. 20-22).

DOE disagrees with this comment. In its interpretation ofmanufacturer impacts, NRDC overlooks the important role that the efficiency mix assumptions playin the financial projections. In Section 8.4.8 oftheTSD, we described the dynamicsbywhichthe profits of manufacturers withhigher operating costs depend onthe sale ofpremium products, and howthose products are differentiable only at efficiency levels higher thanthebaseline. The closerthe baseline unit is tothetechnological limit, the fewer consumers will "buy up" to a higherefficiency. Formore and

more consumers, thebaseline willbe the cost-effective option, andthose

consumerswho wishto "buy up" will have fewer options and less financial incentive to do so. Forthese reasons, DOE assumed the Roll-up efficiency scenario tobethe most probable for 13 SEER standard levels and the NAECA efficiency scenario mostprobable at 12 SEER standard levels. Theresulting cumulative change inindustry net presentvalue (NPVJ is negative $300 million at 13 SEER levels compared to negative $199 million at 12 SEER levels.

NRDC's interpretation of manufacturerimpacts also overlooks short-run cashflow impacts ofthe standards. While NPV isuseful for evaluating thelong-term effects ofnew standards, short-term changes in cash flow are also importantindicators ofthe industry's financial situation. The annual cash flow impacts at 13 SEER are $31 million more than at 12 SEER and turn the absolute cashflow negative. Depressed cashflow can strainthe industry's access to capital or cause investors to flee.

OOE, Goodman, andACEEE all claim thatthe industryimpacts dueto 13 SEER standards cannotbe too severe as thetechnologiesrequired to comply withthe standard are conventional and well known. (OOE, No. 275 at p. 3; Goodman, No. 269 at p. 3; ACEEE, No. 284 atp. 7). Goodman specifically states thatthe only difference between a 10 SEER,12 SEER, and 13 SEERunits is a little more copperand aluminumused in manufacturing different sized coils.

DOE believes itis erroneous to conclude from the fact that technologies requiredto complywith standards are conventional and well known that it is



### a trivialexercise to increase production volumesto a level capable ofsatisfying theentire U.S. demand for air conditioners. Sales of 13 SEER equipmentand higher are only 3 percent ofall equipment sold and large investmentswouldberequiredto convert all productiontothese levels. Furthermore, as previously described, much ofthe industry's financial health today depends on sales of 12 SEER equipment.
3. Small Manufacturers

The issue ofhowhigher efficiency standards impact small manufacturers also drew several comments. The Department ofJustice's April 5, 2001, letterto DOE regardingthe potential effect on competition ofnew central air conditioner and heat pump efficiency standards statedthat some small manufacturers wouldbe disproportionately impactedundera 13 SEER standard, andnoted that 100 percent oftheir current productline would fail to comply withthe new efficiency requirement. The Department ofJustice also statedthat manufacturers ofequipment for space-constrained installation sites (such as manufactured housing) would also be disproportionatelyimpactedby a 13 SEER standard (DOJ, No. 285 printed in Appendix ofthis notice).

Goodman assertedthat movingto a 13 SEER would notbe a hardship to small manufacturers. Goodman claims that 13 SEER technology has been available to both large and small manufacturers for approximately 15 years. Goodman also pointstothe fact that Goettl Air Conditioning, a small manufacturer based in Arizona, supports the 13 SEER standard. (Goodman, No. 269 at p. 3). PG&E concurs with Goodman's statements. (PG&E, No. 274 at p. 4). NRDC asserts that higher efficiency standards encourage competitionby shaking up the cozy arrangements that thebigger companies have drifted into, requiring manufacturers eitherto invest inbuildingnewcomponents orto purchasenewcomponents from other suppliers. They claimthat this provides smaller, nimble manufacturers an opportunity to unseat large but slowadapting competitors. (NRDC, No. 250 at p.31).

BothARI and Rheem agree withthe Department ofJustice's statements regarding small manufacturers. Rheem states that small manufacturers will most likely notbe able to afford the redesign and retooling oftheir equipment and manufacturing facilities tomeet the 13 SEER standard. ARI quotes DOE's TSD in statingthat "small manufacturers engaged in the production ofconventional equipment would find it difficult to overcome the financial and technical burdens associated with thetransition, and could decide to exitthe m:rket." (ARl, No. 259 at pp. 10-11;Rhf3m, Nt. 248 at p. 3).

With regard tothe mam**fa~illre's** of equipment for the manufa, tured housing industry, both AR and Goodman agree that produ :t.> for markets like manufactured housing, where space constraints limit effic'.e'1cy gains achieved with**conven~ional** technology, shouldbe granted.m exemption from higher efficiency standards. (ARl, No. 259 at p. 8; Goodman, No. 269 at p. 3).

The Department ofJustice's**conc~rns** relate to disproportionate impacts on small manufacturers. Most small manufacturers produce only indoor coils or niche product lines. For small manufacturers who produce coils only, there are no intensive incremental technological or capital requirements for them to increase the efficiency oftheir products andDOE does not expectthem to face any incremental burden as a result ofthe new standards. However, DOE has documented that manufacturers ofniche air conditioning products, such as through-the-wall equipment and small duct, high velocity systems, face special technological and financial considerations compared to those faced by the major air conditioner producers. Consequently, new efficiency standards couldbe more detrimental to the financial situation of niche product manufacturers than of major manufacturers. Technical considerations are typically more important for certain niche manufacturers than for major manufacturers and have more severe consequencesrelated to increased production costs orloss ofsales volume due to increased price. Overall, if provisions were not made inthe standard for niche products that face

severe technological constraints, we would expecttheir impacts to be disproportionate to those on the industry as a whole. Intoday's rule, DOE is establishing separate product

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classes for through-the-wall equipment range ofcosts bounded by the ARI Product Attribute Database and and small duct, high velocity systems, manufacturers' submission. Trane technical literature to describe the which willbe required to meet a lower nevertheless thinks that, despite its efficiency-related attributes ofthose SEER.DOE believes this meets the shortcomings, the reverse engineering products. Additionally, from the group Department of Justice's concern analysis essentially confirmed cost ofmanufacturer submittals, three units regarding the impact ofmore stringent levels submitted by ARI. However, were purchased for extensive standards on small manufacturers. Trane recommends that DOE utilize the disassembly and inspection. In their

DOE recognizes that products used for cost data submitted by ARI. EEI concurs comment ARI does not explain how it manufactured housing and modular with this conclusion. (Trane, No. 262 at derived baseline costs (estimation housing also face space constraints. In 9-10; EEI, No. 253 at p. 2). ARI states method, models included, product its decision to propose 12 SEER that it surveyed its manufacturer features, etc.), making an assessment or standards for conventional products, members after DOE issued its January 22 comparison to DOE's costs impossible. DOE took into consideration the impacts final rule. The results ofthe survey In contrast, the reverse engineering of higher efficiency standards on the indicate that: (1)DOE has derivation method and resulting manufacturers ofmanufactured housing underestimated the baseline disaggregated baseline data are and modular housing products. For manufacturer costs by approximately 30 transparent and have beenreviewed these applications, products at the 12 percent and (2)the additional cost ofa extensively by stakeholders. SEER level are currently on the market. 13 SEER split air conditioner over a 12 Several comments also focused on the DOE has concluded that, at the 12 SEER SEER is not $122 as estimated by DOE, issue ofproductivity gains and asserted level, there is no need for a separate but is at least approximately $305. ARI that these gains would lower class for products used mainly in also refutes Goodman's claim that the manufacturing costs below the levels manufactured or modular housing. amount ofcopper and aluminum estimated by DOE. ACEEE, ASE, and

4. Manufacturer Cost Estimates needed for a 13 SEER unit is OOE all refer to historic changes as insignificant. In reviewing Goodman's shown by the U.S. Census Bureau's Several comments asserted that DOEs current technicCurrent Industrial literature, ARI states and manufacturing cost estimates derived that on average a Goodman 13 SEER state that air conditioner costs tothe from the reverse engineering analysis that on average a c onditioner weighs 44 pounds manufacturer have declined at a rate of

were too high. The comments stated that (18 percent) more than a 12 SEER 1.7 percent annually over the 1994- economies ofscale in production and (8 peret)more tspe cal, G mana 1 S 1998 period. They assert that DOE competieforces will result in lower system. More specifically, Goodman's should include this rate ofcost competitive forces will result in lower 13 SEER condenser and evaporator coilsshould include this rate ofcost costs for the more efficient equipment as are con av eerage 2 percnt and 11.5 reductions in its analysis. They addthat compared to pre-implementation percent heavier than the condenser and t h e Census figures are probably estimates. (ACEEE, No. 284 at p. 2; CFA, evaporator ci r ther conservative as they ignore the fact that No. 246 at p. 1;NCLC, No. 241-NN atSEER manufacturers tend to find ways to p. 21). OoE specificaly s s at the unt, respectively. (ARI, No. 259 at .te substantially increase productivity
cost ofthe commodity product at a 23-25). York states that the reverse when standards take effect in order to minimum standard level cannot be engineering analysis is awed because it reduce the impact of standards-induced appropriately characterized bylooking focused on oney bie l e

of teq ent, a 3 cost increases. In making this claim, the
at the mean or median manufacturer ton ut and they beeve that thewholecomments cite DOE's cost estimates
cost estimates from the reverse range of equipment should have been from the 1980's for meeting the 10 SEER engineering analysis. (OOE, No. 275 at analyzed, as size becomes much more standards that took effect in 1992. p. 3). Goodman states that their problematic and costly at higher Rather than having any cost impacts, incremental cost for producing a 13 capacities. (York, No. 270 at p. 3). they assert that the 1992 standards SEER unit is $100 and is comparable to DOE believes that the reverse resulted in essentially no change in DOE's estimate. (Goodman, No. 269 at engineering analysis isbased on a product costs. (ACEEE, No. 284 at pp. pp. 3-4). sufficient equipment sample size to 4-8; OOE, No. 275 at p. 3; ASE, No. 282

The reverse engineering analysis does capture variability in design, at pp. 3-4). in fact take into account economies of manufacturing practices and costs Although NRDC recognizes that the scale by considering larger production across the range ofproducts that would reverse engineering model accounts for volumes for more efficient products be subject to new standards. The economies of scale, it states that it does after implementation ofthe new equipment models were selected to be not account for any "learning-curve" standards. In its production modeling, representative ofthe costs to effect. Thus, as cumulative production DOE also considered that manufacturers manufacture existing baseline models ofhigh efficiency units increases, the would cost-optimize their production at and to capture the costs to manufacture reverse engineering model merely scales the new level because ofmore intense products at potential new standards up the costs rather than factoring the competition at that level. We expect this levels. To select representative downward effect that "learning" has on competitive pressure to drive equipment samples for the reverse production costs. (NRDC, No. 250 at pp. manufacturing costs and this is engineering analysis, DOE requested 31-32). Goodman also alludes tothe illustrated by the results ofthereverse that manufacturers identify equipment "learning-curve" when it states that engineering analysis which fall within in their product lines most appropriate when a unit meeting a new standard is the ARI iange and nearer to the ARI for this purpose. Four major produced in volume, it allows the minimum. manufacturers submitted design data for manufacturer to run its plant more

ARI, Trane, York, and EEI disagree split cooling-only equipment, and three efficiently and pass the resulting cost with the above comments and assert ofthose submitted design data for the savings on to the consumer. (Goodman, that DOE's manufacturing cost estimates other classes as well. This submission No. 269 at pp. 4-5). Trane, Rheem, and

are too low. Trane states that the reverse process yielded information on 62 Lennox International, Inc. (Lennox)) all engineering analysis was based on too models. DOE selected an additional refute the contention that productivity small ofa sample ofunits and nine models from catalogs ofthose and gains will materialize. Trane asserts that eliminated units which fell out ofthe other manufacturers and also used the earlier hard won productivity gains 

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classes for through-the-wall equipment and small duct, highvelocity systems, which will berequiredto meet a lower SEER. DOE believes this meets the Department ofJustice's concern regarding the impact ofmore stringent standards on small manufacturers.

DOE recognizes that products used for manufactured housing and modular housing also face space constraints. In its decisionto propose 12 SEER standards for conventional products, DOE tookinto considerationthe impacts ofhigher efficiency standards onthe manufacturers ofmanufacturedhousing and modularhousingproducts. For these applications, products atthe 12 SEER level are currently onthe market. DOE has concludedthat, at the 12 SEER level, there is no need for a separate class for products used mainly in manufactured ormodularhousing.
4. Manufacturer Cost Estimates

Several comments asserted that DOE's manufacturing cost estimates derived from thereverse engineering analysis

weretoo high. The comments statedthat economies ofscale in production and competitive forces will result inlower costs for the more efficient equipment as compared to pre-implementation estimates. (ACEEE, No. 284 at p. 2; CFA, No. 246 at p. 1; NCLC, No. 241-NN at p. 1). OOE specifically statesthatthe cost ofthe commodity productat a minimum standardlevel cannotbe appropriately characterizedby looking at the mean or median manufacturer cost estimates from thereverse engineering analysis. (ODE, No. 275 at p. 3). Goodman statesthattheir incremental cost for producing a 13 SEER unit is $100 and is comparable to DOE's estimate. (Goodman, No. 269 at pp.3-4).

Thereverse engineering analysis does in fact take into account economies of scale by conSidering larger production volumes for more efficient products after implementation ofthe new standards. Inits production modeling, DOE also consideredthat manufacturers wouldcost-optimize theirproduction at the new level because ofmore intense competitionat that level. We expect this competitive pressureto drive manufacturing costs andthis is illustratedbytheresults ofthereverse engineering analysis which fall within the ARl I ange and nearerto theARl minimum.

ARl, Trane, York, andEEl disagree withthe above comments and assert that DOE's manufacturing cost estimates

are too low. Trane states that the reverse engineering analysis wasbased ontoo small ofa sample ofunits and eliminated units which fell out ofthe range ofcosts boundedbythe manufacturers' submission. Trane neverthelessthinksthat, despite its shortcomings, the reverse engineering analysis essentially confirmed cost levels submittedby ARl. However, Tranerecommends that DOE utilize the cost data submittedby ARl. EEl concurs with this conclusion. (Trane, No. 262 at 9-10;EEl, No. 253 at p. 2). ARl states that it surveyed its manufacturer members after DOE issued its January 22 final rule. Theresults ofthe survey indicate that: (1) DOE has underestimatedthebaseline manufacturer costs by approximately 30 percent and (2) the additional cost ofa 13 SEER split air conditioner over a 12 SEER is not $122 as estimatedby DOE, butis atleast approximately $305. ARl also refutes Goodman's claim thatthe amount ofcopperand aluminum needed for a 13 SEER unit is insignificant. In reviewing Goodman's currenttechnical literature, ARl states that onaverage a Goodman 13 SEER split airconditionerweighs 44 pounds (18 percent) more than a 12 SEER system. More specifically, Goodman's 13 SEER condenser and evaporator coils

are on average 20.2 percent and 11.5 percentheavierthanthe condenser and evaporator coils from their 12 SEER unit, respectively. (ARl, No. 259 atpp. 23-25). York states thatthe reverse engineering analysis is flawed because it focused on one size ofequipment, a 3- ton unitand they believethat the whole range ofequipment should havebeen analyzed, as size becomes much more problematic andcostly at higher capacities. (York, No. 270 at p. 3).

DOE believes that the reverse engineering analysis is based on a sufficient equipment sample size to capture variability in design, manufacturing practices and costs
across the range ofproducts thatwould be subjectto new standards. The equipment models were selectedto be representative ofthe costs to manufacture existingbaseline models and to capture the costs to manufacture products at potential new standards levels. To selectrepresentative equipment samples for the reverse engineering analysis, DOE requested that manufacturers identify equipment intheir product lines most appropriate for thispurpose. Fourmajor manufacturers submitted design data for splitcooling-only equipment, andthree ofthose submitted design data for the other classes as well. This submission processyielded information on 62 models. DOE selected an additional ninemodels from catalogs ofthose and othermanufacturers and also usedthe ARl ProductAttributeDatabase and technical literature to describe the efficiency-related attributes ofthose products. Additionally, from the group ofmanufacturer submittals, three units

were purchased for extensive disassembly and inspection. In their comment ARl does not explain how it derivedbaseline costs (estimation method, models included, product features, etc.), making an assessment or comparison to DOE's costs impossible. In contrast, thereverse engineering derivation method andresulting disaggregated baseline data are transparent and havebeenreviewed extensivelyby stakeholders.

Several comments also focused on the issue ofproductivity gains and asserted thatthese gains would lower

. manufacturing costs belowthe levels estimated by DOE. ACEEE, ASE, and OOE all refer to historic changes as shownby the U.S. Census Bureau's Current Industrial Reports series and statethat air conditioner costs to the manufacturerhave declined at a rate of 1.7 percentannually overthe 1994- 1998 period. They assert that DOE should include this rate ofcost reductions in its analysis. They addthat the Census figures are probably conservative as they ignore the fact that manufacturers tendto find ways to substantially increase productivity when standards take effect in orderto reduce the impact ofstandards-induced cost increases. In making this claim, the comments cite DOE's cost estimates from the 1980's for meeting the 10 SEER standards that took effect in 1992. ' Ratherthanhaving any cost impacts, they assert that the 1992 standards resulted in essentially no change in product costs. (ACEEE, No. 284 at pp. 4-8; OOE, No. 275 at p. 3; ASE, No. 282 at pp. 3-4).

Although NRDC recognizes that the

reverse engineering model accounts for economies ofscale, it states that it does not account for any "learning-curve" effect. Thus, as cumulative production ofhigh efficiency units increases, the

reverse engineeringmodel merely scales up the costs ratherthan factoring the downward effect that "learning" has on production costs. (NRDC, No. 250 at pp. 31-32). Goodman also alludes to the "learning-curve" when it states that when a unit meeting a new standard is produced in volume, it allows the manufacturerto run its plantmore efficiently andpass the resulting cost savings on to the consumer. (Goodman, No. 269 at pp. 4-5). Trane, Rheem, and Lennox International, Inc. (Lennox)) all refute the contention that productivity gains will materialize. Trane asserts that earlier hard wonproductivity gains

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were produced by the industry through standards. By extension, PG&E asserts ofseparate product classes for products untold millions spenton R&D. These that 13 SEER standards would foster used in space contained applications. expenditures reduced the cost to manufacturing diversity by providing In arriving attoday's decision to produce the entire product line, butdid the coil manufacturers more business. adopt a 12 SEER standard, DOE relied littleto reduce the material-driven (PG&E, No. 274 at p. 3). on the Department ofJustice's expert incremental costs ofefficiency Countering the above claims, ARI, opinion that a 13 SEER air conditioner upgrades. Likewise, any cost reductions Trane, and the U.S. Small Business and heat pump standard raises likely to occur inthe next decade will Administration (U.S. SBA) asserted that competitive concerns (April5, 2001 have significantly greater impact on the a 12 SEER standard would have less of letter), and that a 12 SEER standard overall consumer cost structure than on an anti-competitive impact than the 13 would not adversely affect competition the cost and price increment between SEER standard. (ARI, No. 259 at pp. 3- (October 19, 2001 letter). DOE also successively higher efficiency levels. 4, 25; Trane, No. 262 at pp. 2-4,13-14; factored into consideration the serious Rheem states that under a 13 SEER U.S. SBA, No. 234 at p. 1). Both ARI and concerns regarding potential antistandard only industry profits will be Trane cited the Department ofJustice's competitive effects at highertrial reduced, lessening themoney available April 5, 2001 letterto DOE regarding the stadard levels presented in the TSD. for research and design ofnew products anti-competitive impacts of 13 SEER DOE's analysis demonstrates that both
to meet other upcoming standards, i.e., standards in claiming that the industry High and Low Operating Cost HCFC phase-out, new commercial impacts due to 13 SEER standards are Manufacturer groups would experience standards, new gas and oil furnace too severe. ARI additionally stated that negative cash flows in the years leading standards. (Trane, No. 262 at pp. 10-11; DOE's failure to obtain a determination upto the new standard under TSL3 and Rheem, No. 248 at p. 3; Lennox, No. 272 by the Attorney General ofthe anti- TSL4, but only the higher operating cost at p. 2). competitive impact of the 13 SEER group is expected to suffer along term

DOE has notincluded unspecified standard prior to issuing the January 22 deine ve ca o a return productivity improvements or final rule is an appropriate basis to on ivested capital. Since Low "learning-curve" cost reductions in its withdraw the 13 SEER decision. The Operating Cost Manufacturers would analysis. DOE does not believe Department ofJustice (DO) submitted likely benefit from 13 SEER standards, historical price trends for unitary air co ts DOEmost ofthetotal financial burden due to conditioners, or other products, canbe com me

### n ch oncluded tatthe 12 the standards wouldneed to beborne by applied to forecast equipment costs SEER proposal would not adversely High Operating Cost Manufacturers. The where there are no data to indicate what S R p ro p i (o No differential impact between the 

### factors resulted in theobserved trends affect competition. (DOJ, No. 285subgroups is $238 million at 12 SEER

orthat the trends will continue.pri n te

### d in the Appenx to t

### his n o t ce

### ). and rises to $429 million at 13 SEER. Furthermore without specific co st Inestablishing the new standards, Due to this probable maldistribution of information, it is imposible to tell if DOE considered several factors which industry impacts at 13 SEER,DOE was productivity improvements would have a potential bearing on industry particularly concerned that either apply equally to baseline costs and competition and consolidation. For each accelerated industry consolidation (i.e. standards induced incremental costs. trial standard level DOE considered: less competitive market) or the stifling Therefore, without specific data on the Changes in manufacturer netpresent ofinnovation could occur. nature and magnitude ofcost impacts value; cumulative regulatory burden; DOE will not apply a productivity and changes in annual cash flow. To F.Effect on UtilityorPerformnce improvement factor in this rulemaking further capture competitive effects, DOE 1 Dehumidification

or other rulemakings. consred dfferentalmacts on three The onlycomments regarding product sub-groups ofmanufacturers, since E.Effect on Competition higher efficiency standards will affect utility pertainedto the mpacts hat Several comments argued thatDOE each group ofmanufacturers differently. mo stringent standards may have on
was unduly concerned that 13 SEER "Low Operating CostManufacturers" the ability ofair-conditioning standards would lead to industry observe a low cost, commodity-product equipment to properly dehumidify. consolidation. NRDC claimed thatthe strategy and achieve ahigher operating Ctr cm th a t te er atetus 13 SEER standards would actually profit margin on theirbaseline enhance competition relative to the equipment. DOE's analysis indicates cooling capacity nherent i larger, more existing 10 SEER standards because thatthis group ofmanufacturers will efenut inehumidification roblems in economic losses imposed on higher-cost likely benefit from higher standards. humid climates. (Southern Company, producers would force them to be more "High Operating Cost manufacturers 257atpp 34 Mercatus Center, No. competitive. (NRDC, No. 250 at pp. 20- typically place more ofan emphasis on 242 at p 22). OOE addsthat industry product differentiation than cost As stated in the October 5, 2000 consolidation occurs regularly in all leadership. For this group of NOPR, ARI research has demonstrated
sectors ofthe economy. In the context manufacturers, higher standards reduce for hundreds ofsystems that latent heat ofthe various factors that influence opportunities for product differentiation removal is not obviously impacted by industry consolidation, OOE asserts that and lower profitability. Finally "Small increases in equipment efficiency at it isunreasonable for DOE to claim that Manufacturers" fall intotwo groups; rated conditions (i.e., 95°F outdoor the incremental effects ofefficiency manufacturers ofequipment for niche temperature).l 5 

### See 65 FR 59611-59612. standards can have any measurable markets and manufactures ofindoor Nonetheless, DOE recognizes the effect on the industry. (OOE, No. 275 at coils and fancoil units. As previously humidity control problems that exist in pp. 3-4). PG&E cites third party coil stated in Section VI (D)(3), we do not the southern region ofthe U.S. For the manufacturers' response to PG&E's high expect coil manufacturers to face any excessive humidity conditions efficiency rebate programs as support incremental burden as aresult of new commonly experienced in the South, for the view that these small coil standards. Also we stated that impacts manufacturers can supply the efficiency on niche manufacturers havebeen sD.Godwin. 1998. "Latent Capacity of Unitary combinations needed to meet new largely addressed through the creation Equipment." ASHRAE Transactions 98(2). 

### EE·RM/STD·98-440

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were producedbythe industrythrough untold millions spenton

### RBtD. These expenditures reducedthe costto produce the entire product line, butdid littletoreducethe material-driven incremental costs ofefficiency upgrades. Likewise, anycostreductions likely to occur inthe next decade will have significantly greater impact onthe overall consumercost structure than on the cost andprice incrementbetween successivelyhigherefficiencylevels. Rheem statesthatunder a 13 SEER standard only industryprofits willbe 

### reduced, lesseningthemoney available for research and design ofnew products to meet other upcoming standards. i.e.• 

### HCFC phase-out. newcommercial standards. newgas and oil furnace standards. (Trane. No. 262 at pp. 10-11; Rheem. No. 248 at p. 3; Lennox. No. 272 atp. 2).

DOE has notincludedunspecified productivity improvements or "learning-curve" costreductions inits analysis. DOE does notbelieve historical price trends for unitary air conditioners. or otherproducts. can be applied to forecast equipment costs wherethere are no datato indicate what factors resulted inthe observed trends

orthatthetrends will continue. Furthermore. without specific cost information. it is impossible to tell if productivity improvements would apply equallytobaseline costs and standards induced incremental costs. Therefore. without specific data on the nature and magnitude ofcost impacts. DOE will not apply a productivity improvement factor inthisrulemaking

or otherrulemakings.
E. Effect on Competition



### Several comments arguedthat DOE

was undulyconcernedthat 13 SEER standards would lead to industry consolidation. NRDC claimedthatthe 13 SEER standards would actually enhance competitionrelative to the existing 10SEER standardsbecause economic losses imposed onhigher-cost producers would force them to bemore competitive. (NRDC. No. 250 at pp. 20- 22). ODE addsthat industry consolidation occurs regularly in all sectors ofthe economy. In

### the context ofthe various factors thatinfluence industry consolidation. ODE asserts that it

### is unreasonable for DOE to claimthat the incremental effects ofefficiency standards canhave any measurable effect onthe industry. (DOE. 

### No. 275 at pp. 3-4). PG&E citesthird party coil manufacturers'responseto PG&E's high efficiency rebate programs as support for the view thatthese small coil manufacturers can supply the efficiency combinations neededto meet new standards. By extension. PG&E asserts that 13 SEER standardswouldfoster manufacturing diversity by providing the coil manufacturers more business. (PG&E. No. 274 at p. 3).

Countering the above claims. ARl. 

### Trane. andtheU.S. Small Business Administration (U.S. SBA) asserted that

a 12 SEER standardwouldhave less of

an anti-competitive impact thanthe 13 SEER standard. (ARl. 

### No. 259 atpp. 3- 4.25; Trane. No. 262 at pp. 2-4. 13-14; U.S. SBA. No. 234 at p. 1). Both ARl 

### and Trane cited the Department ofJustice's April 5. 2001 letterto DOE regarding the anti-competitive impacts of 13 SEER standards in claimingthat the industry impacts dueto 13 SEER standards are too severe. ARl 

### additionally stated that DOE's failure to obtain a determination bythe Attorney General ofthe anticompetitive impact ofthe 13 SEER standard priorto issuing theJanuary 22 final rule is an appropriatebasis to withdrawthe 13 SEER decision. The Department ofJustice (DOJ) submitted comments onDOE's July 25. 2001 SNOPR which concludedthatthe 12 SEER proposal would not adversely affect competition. (DOJ. No. 285 printed inthe Appendixto this notice).

Inestablishingthe new standards. DOE considered several factors which have a potentialbearing on industry competition and consolidation. For each trial standard level DOE considered: Changes inmanufacturer net present value; cumulativeregulatory burden; and changes in annual cash flow. To further capture competitive effects. DOE considered differential impacts onthree sub-groups ofmanufacturers. since higher efficiency standards will affect each group ofmanufacturers differently. "Low Operating Cost Manufacturers" observe a low cost. commodity-product strategy and achieve a higher operating profit margin ontheirbaseline equipment. DOE's analysis indicates thatthis group ofmanufacturers will likely benefitfrom higher standards. "HighOperating Cost" manufacturers typically place more ofan emphasis on product differentiation than cost leadership. For this group of manufacturers.higher standardsreduce opportunities for product differentiation andlower profitability. Finally "Small Manufacturers" fall intotwo groups; manufacturers ofequipmentfor niche markets and manufactures ofindoor coils andfancoil units. As previously statedin Section VI (D) (3). we do not expect coil manufacturers to face any incrementalburden as a result ofnew standards. Also we stated that impacts

on niche manufacturershavebeen largely addressedthrough thecreation ofseparate product classes for products used in space contained applications.

In arriving attoday's deCIsion to adopt a 12 SEER standard. DOE relied

onthe Department ofJustice's expert opinionthat a 13 SEER air conditioner and heat pump standard raises competitive concerns (April 5. 2001 letter). and that a 12 SEER standard would not adversely affect competition (October 19. 2001 letter). DOE also factored into consideration the serious

concerns regarding potential anticompetitive effects at higher trial standard levels presented in the TSD. DOE's analysis demonstrates that both High and Low Operating Cost Manufacturer groups would experience negative cash flows in theyears leading upto the new standard underTSL3 and TSL4. but only thehigher operating cost group is expected to suffer a long term decline in value. cash flow. and return
on invested capital. Since Low Operating Cost Manufacturers would likelybenefit from 13 SEER standards. most ofthetotal financial burden due to the standardswouldneed to be borne by High Operating Cost Manufacturers. The differential impact between the subgroups is $238 million at 12 SEER and rises to $429 million at 13 SEER. Due to this probable maldistribution of industry impacts at 13 SEER. DOE was particularly concernedthat either accelerated industry consolidation (i.e., 

### less competitive market) or the stifling ofinnovation could occur. F. Effect on Utility orPerformance


### 1. Dehumidification

The onlycomments regarding product utility pertained to the impacts that

more stringent standards may have on the ability ofair-conditioning equipmenttoproperly dehumidify. Both Southern Company and Mercatus Center claim thatthe lower latent cooling capacity inherent in larger. more efficient single speed equipment would result in dehumidification problems in humid climates. (Southern Company. No. 257 at pp. 3-4;Mercatus Center. No. 242 at p. 8).

As stated in the October 5. 2000 NOPR. ARl

### research has demonstrated for hundreds ofsystems that latentheat removal is not obviouslyimpactedby increases inequipment efficiency at rated conditions (j.e.• 

### 95°F outdoor temperature).15 See 

### 65 FR 59611-59612. Nonetheless. DOE recognizes the humidity control problems that exist in the southern region ofthe U.S. For the excessive humidity conditions commonly experienced in the South.

15D. Godwin. 1998. "Latent Capacity ofUnitary Equipment." ASHRAE Transactions 98(2).

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theequipment may very likely not residential central air conditioners have Company, DOE has demonstrated in its provide adequate dehumidification. on peak power by a factor ofmore than technical analysis (SeeTSD, Chapter 4) Equipment efficiency should not be two. To correct this problem, ACEEE that in the efficiency range of 10 to 13 viewed as the sole source ofthe recommends correcting NEMS-BRS SEER, the EER, on average, increases problem, however. Proper installation with load shape data that is more proportionally to the SEER. Thus, DOE and maintenance practices also likely nationally representative ofcentral air maintains that higher standards of up play a large role in the equipment's conditioner power consumption. ACEEE through 13 SEER will yield performance, as well as other factors, specifically recommends load shape progressively greater peak demand such as the duct system and the data thathas a Conservation Load Factor reductions. Mercatus Center's claims building shell characteristics. Allthese (CLF) of0.104. (ACEEE, No. 284 at pp. regarding increased equipment sales factors play arole in howa system 8-11). leading to higher overall air conditioner dehumidifies. For these reasons, DOE Both EEI and Southern Company use are not substantiated. As presented does not believe the 12 SEER standard assert that a 13 SEER standard could earlier in the shipments forecasts adopted today will have an appreciable actually increase peak power demand. discussion, dueto higher consumer effect on the performance ofcentral air EEI states thatfor units rated at 13 SEER purchase prices, DOE's shipments conditioners, and any problem with and higher, there is no correlation model forecasts declining rather than dehumidification can be dealt with in a between SEER and EER. 1 6 

### So if the increasing sales due to more efficient variety ofways other than lowering the standard was raised to 13 SEER,EEI standards. Thus,DOE concludes that energy efficiency standard. believes it is likely that the there is a very low probability that
G. ElectricSystem Reliability/Peak manufacturers would use technologies increased standards could actually lead EPowerS e ek to raise SEER values and lower EER to an increase in peak demand. values, assuming it would lower their As stated in the January 22 final rule 1.Peak Power production costs. Thus, thehigher SEER regarding peak demand impacts, DOE

As part ofits analysis to determine values could very easily lead to lower recognized that more research was the impacts ofamended efficiency EER values, resulting in reduced energy needed to resolve the issue ofwhether standards, DOE quantified how savings in warmer climates, increased NEMS-BRS accurately estimates the increased standards affected installed peak demands associated with peak demand reductions resulting from generation capacity, i.e.,reduction in residential systems in all climates, and air conditioner efficiency standards. See electrical power demand. Inresponse to increased need for peaking power 66 FR 7182. Toresolve this outstanding DOE's proposal to withdraw the January plants. (EEI, No. 253 at pp. 2-3). issue as well as address those comments 22 final rule, several comments Southern Company adds that the submitted by ACEEE in response to the expressed concern thatthe 12 SEER reduction in peak demand from higher July 25 SNOPR, DOE conducted a standard would have less ofan impact efficiency standards is solong-term as to comprehensive review ofthe end-use

on peak power demand than the 13 have no bearing on current problems. load shapes used by NEMS-BRS, not SEER standard. (AustinEnergy, No. 243 Thus, it is entirely possible that the only for the residential sector, butfor
at p. 1; State ofConnecticut, No. 279 at higher efficiency levels could exacerbate the commercial, industrial, and
p. 1; Attorneys General ofNew York and a supply glut in the regions now transportation sectors as well.' 7 

### DOE Massachusetts, No. 277 at pp. 15-16; experiencing shortages ten to fifteen discovered a number ofproblems New York StateEnergy Research and years from now. (Southern Company, associated with the specific load shapes. Development Authority (NYSERDA), No. 257 at p. 3). Mercatus Center In thecase ofthe residential airNo. 252 at p. 1; State ofVermont, No. believes thathigher SEER standards conditioning end-use, DOE determined 268 at p. 3; PG&E, No. 274 at p. 3; State would cause more people to use their that a non-representative load shape ofNevada, No. 271 atp. 2; National airconditioners more dueto their lower was assigned to it.This nonGrid, No. 241-00 at p. 3). operating costs. The result during aheat representative load shape peaks in

Regardless ofSEER level, ACEEE wave could increase overall air October and has acorrespondingly high asserted that DOE significantly conditioning usage, increasing peak CLF.As discussed in the January 22 underestimated the peak demand demand and the risk ofablackout, and final rule, the CLF was first introduced impacts ofmore efficient air leaving everyone without air by researchers at Lawrence Berkeley conditioners. Specifically, ACEEE states conditioning. (Mercatus Center, No. 242 National Laboratory to allow for the that DOE's model to estimate peak at pp. 9-10). straightforward calculation ofthe peak 

### power impacts, NEMS-BRS, uses load First, in response to the comments demand avoided from a given amount of shapes that underestimate the effect that submitted by EEI and Southern energy savings.'8 

### The CLF is defined as:

CLF Annual Site Energy Saving s (kWh) Peak Load Savings (kW) 8760 hours

Thus, a conservation technology that Because air conditioning use occurs The lower the CLF, the greater the

saves a constant amount ofpower on a most often during times ofpeak amount ofpeak load savings achieved continuous basis has a CLFof 1.0. demand, the CLF is significantly lower.

" EER, Energy Efficiency Ratio, is a steady-state when electricity use by air conditioners is at its Applicationsto CommercialSectorConservation

measure of energy efficiency which determines peak. Programs,Lawrence Berkeley National Laboratory, efficiency at a prescribed outdoor temperature " AlternativeSectoralLoadShapes forNEMS, Berkeley, CA, August 1990, published in the (95°F), and is one ofthe test conditions in the DOE Department ofEnergy-Energy Information Proceedings of the 1990 ACEEE Summer Study on
testprocedure used to develop the SEER. EER is Administration, Washington, D.C., August 2001. Energy Efficiency in Buildings, Authors: J. Koomey, generally thought of as an efficiency descriptor that " ConservationScreeningCurves to Compare A. Rosenfeld, and A. Gadgil. indicates the level ofperformance during periods EfficiencyInvestments toPower Plants: 

### EE-RM/STD-98-440-

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### 67, No. lOO/Thursday, May 23, 2002/Rules and Regulations 

### 36391

the equipment may very likely not provide adequate dehumidification. Equipment efficiency should notbe viewed as the sole source ofthe problem. however. Properinstallation andmaintenance practices also likely playa large role inthe equipment's performance. as well as other factors. such as the duct system andthe building shellcharacteristics. Allthese factors playarole inhowa system dehumidifies. Forthesereasons. DOE does not believethe 12 

### SEER standard adoptedtoday will have an appreciable effect on the performance ofcentral air conditioners. and any problem with dehumidification canbe dealt with in a variety ofways otherthan lowering the energy efficiency standard.
G. Electric System ReliabiJitylPeak Power
1. 

### PeakPower

As part ofits analysis to determine the impacts ofamended efficiency standards. DOE quantifiedhow increased standards affected installed generation capacity. i.e.• 

### reduction in electrical powerdemand. Inresponse to DOE's proposal to withdraw the January 22 

### final rule. several comments expressed concernthat the 12 

### SEER standard would have less ofan impact

onpeak powerdemand than the 13 

### SEER standard. (AustinEnergy. No. 243 

### at p. 1;

### State ofConnecticut. No. 279 

### at p. 1;

### Attorneys General ofNew York and Massachusetts. No. 277 

### at pp. 15-16; 

### New York State Energy Research and Development Authority (NYSERDA). No. 252 

### at p. 1; 

### State ofVermont, No. 268 

### at p. 3; 

### PGBtE. No. 274 

### at p. 3;

### State ofNevada. No. 271 

### atp. 2; 

### National Grid, No. 241-00

### at 

### p. 3).



### Regardless ofSEER level. ACEEE asserted thatDOE significantly underestimatedthe peak demand impacts ofmore efficient air conditioners. Specifically. ACEEE states thatDOE's model to estimate peak power impacts. NEMS-BRS. uses load shapes that underestimate the effect that

Thus, a conservationtechnology that

saves a constantamount ofpoweron a continuousbasis has a CLF of 1.0.

..EER. Energy Efficiency Retio, is a steady-state

measure ofenergy efficiency which determines efficiency at a prescribed outdoortemperature 195·F), and is one ofthe test conditions intheDOE test procedureused to develop the SEER. EER is generally thought ofas anefficiency descriptor that indicates the level ofperformance during periods 

### residential central air conditioners have

onpeakpowerby a factor ofmore than two. To correctthis problem. ACEEE recommends correcting NEMS-BRS with load shape data that is more nationally representative ofcentral air conditionerpower consumption. ACEEE specifically recommends load shape data thathas a Conservation Load Factor (CLF) of0.104. 

### (ACEEE. No. 284

### at pp. 8-11).



### BothEEl 

### andSouthern Company assert that a 13 

### SEER standardcould actualJyincrease peakpowerdemand. EEl 

### statesthat for units rated at 13 

### SEER andhigher. there is nocorrelation between SEER and EER.1fi So ifthe standardwas raised to 13 

### SEER. EEl believes it

### is likelythatthe manufacturers wouldusetechnologies to raise SEER values andlowerEER values, assuming it wouldlower their production costs. Thus. thehigher SEER values couldvery easily lead to lower EER values. resulting inreduced energy savings inwarmer climates. increased peakdemands associated with residential systems inall climates. and increased needfor peaking power plants. (EEl, 

### No. 253 

### at pp. 2-3). 

### SouthernCompany adds thatthe reduction inpeakdemand from higher effiCiency standards is so long-term as to have nobearing on current problems. Thus. it is entirely possiblethat the higher efficiency levels couldexacerbate

a supplyglut intheregions now experiencing shortages tento fifteen years from now. (Southern Company. No. 257 

### at p. 3). 

### Mercatus Center believes thathigher SEER standards wouldcause more people to use their air conditioners more dueto their lower operating costs. The result during a heat

wave could increase overall air conditioningusage. increasingpeak demand andtherisk ofa blackout. and leaving everyone without air conditioning. (Mercatus Center. No. 242 

### at pp. 9-10).



### First. in response to the comments submitted by EEl and Southern

eLF

### = Annual Site Energy Savings (kWh) 

### Peak Load Savings 

### {kW)·8760 hours

Because air conditioninguse occurs most often during times ofpeak demand.the CLF is significantly lower.

when electricity useby air conditioners is at its peak.

17AltemaUve SectorolLoad ShapesforNEMS. Department ofEnergy-Energy Information Administration, Washington, D.C

.. August 2001.

11 ConselVaUon Screening Curves to Compare EfficiencyInvestments to PowerPlants: 

### Company, DOE has demonstrated in its technical analysis (See

### TSD. Chapter 4) 

### that in the efficiency range of 10

### to 13 

### SEER. the EER. on average. increases proportionallyto the SEER. Thus. DOE maintains that higher standards ofup through 13 

### SEER will yield progressively greaterpeak demand reductions. Mercatus Center's claims regarding increased equipment sales leadingto higher overall air conditioner

use are not substantiated. As presented earlier inthe shipments forecasts discussion. due to higher consumer purchase prices. DOE's shipments model forecasts decliningratherthan increasing sales dueto more efficient standards. Thus. DOE concludes that there is a very lowprobability that increased standards could actually lead to an increase in peak demand.

As stated in theJanuary 22 

### final rule regarding peak demand impacts. DOE recognized that more research was neededto resolve the issue ofwhether NEMS-BRS accurately estimates the peak demand reductions resulting from air conditionerefficiency standards. See 66 FR 7182. 

### To resolve this outstanding issue as well as address those comments submittedbyACEEE inresponse to the July 25 

### SNOPR. DOE conducted a comprehensivereview ofthe end-use load shapes usedbyNEMS-BRS. not onlyfor theresidential sector. but for the commercial. industrial. and transportation sectors as well. 17 

### DOE discovered a number ofproblems associated with the specific load shapes. In the case ofthe residential airconditioningend-use. DOE determined that a non-representative load shape

was assigned to it. This nonrepresentative load shape peaks in October andhas a correspondingly high CLF. As discussed in theJanuary 22 

### final rule. the CLF was first introduced by researchers at Lawrence Berkeley National Laboratory to allow for the straightforward calculation ofthe peak demand avoided from a given amount of energy savings.18 The CLF is defined as:

The lowerthe CLF. thegreater the amount ofpeak load savings achieved

Applications to Commercial Sector ConselVotion Programs. Lawrence Berkeley National Laboratory. Berkeley. CA, August 1990,published inthe Proceedings ofthe 1990 ACEEE SummerStudy on Energy Efficiency in Buildings. Authors:J. Koomey. A. Rosenfeld. and A. Gadgil.

## EE-RM/STD-98-440- 30
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for a given amount ofannual energy 2. Reliability the primary effect ofenergy efficiency savings. See 66 FR 7181. As stated in theJuly 25 SNOPR, DOE standards is likely beyond the long-term

As a result ofdiscovering several has considered as abenefit the potential planning horizon ofmost electric problems with the load shapes within ofthe proposed standards to improve systems. This means that long term NEMS-BRS, an alternative set of the reliability ofthe electric generation electric system reliability is determined sectoral end-use load shapes were and distribution system by reducing the prmarily by how well system planners assigned to the 2002 version ofNEMS- need for installed generation capacity. (generators, utilities, regulators) BRS that were distinctly different than SeeJuly 25 SNOPR, 66 FR 38841. anticipate future loads, notby how large 

### the load shapes used in prior versions Several comments, while not those loads willbe. In other words, ofthemodel (including the 2000 and disputing DOE's conclusion that air planners in most areas of the country 2001 versions). Forexample, in the case conditioner standards would improve generally do not attempt to provide ofthe residential air-conditioning end- electric system reliability, argued that enough generating capacity to satisfy use,the arsi nsistsof the potential for improving reliability peak loads as the marginal cost for use, the alternte on tito 2 N 3ative version consistos ofis generally 

### thirteen regional load shapes based on would bereduced by going forward satisfying peak loads isgenerally Athenregions d

e d b he awith the proposed standards (12 SEER) cheaper usin means other than the regions defined by the NorthAmerican instead ofthose standards issued in the construction oflarge generating Electric Reliability Council (NERC) as January 22 finalrule (13 SEER). (ACEEE,facilities (e.g., the use ofrelatively small compared to the single national lad No 284 at p. 2; NRDC, No. 250 at p. 23; "peaker" plants orthe purchase of shape used in priorversions. Depending NEEP, No. 273 at p. 1; ASE, No. 282 at supply from outside the planning
on the region ofthe country, the thirteen p. 2; CEC, No. 263 at p. 1; National region). DOE knows ofno analysis air-conditioning load shapes have CLFs Association ofRegulatory Utility which has found acorrelation between ranging from 0.063 to 0.183 and Commissioners (NARUC), No. 260 at p. system load factor and system reliability generally peak in either July or August. 2). over the long term. Nor is DOE aware of 

### Although the alternative load shapes Southern Company, which states that any analysis that found a correlation specific to theresidential air- raising the standard from 12 to 13 SEER between the long term rate ofgrowth of conditioning end-use are more will have minimal effect on peak electicity demand and system representative (e.g., the loads peak demand growth, believes this efficiency reliability. during the summer months), switching increase will have even less effect on Higher efficiency standards for central

to the entire set ofalternative sectoral reliability, because there is not a direct air conditioners and heat pumps are 

### end-use load shapes results in smaller relationship between peak demand expected to reduce significantly the peak-to-average system loads. As a growth and reduced electric system peak loads ofelectric systems in the consequence, the overall built-up reliability. The Southern Company future, thus enabling areduction in the system load shapes using the alternative claims thatthe reduction in peak number ofnew power plants and sectoral end-use load shapes have less demand from higher efficiency transmission lines required to meet pronounced peaks than those that are standards is so long-term as tohave no future demand. Electric system planners
used in prior versions ofNEMS-BRS. bearing on current problems. It is will take these efficiency improvements 

### Because the built-up system loads entirely possible that thehigher and other factors affecting future within the 2002 version ofNEMS-BRS efficiency levels could exacerbate a electricity demand into account when
have less pronounced peaks, the impact supply glut in the regions now estimating how many new plants and 

### ofreducing the energy use on a experiencing shortages tento fifteen transmission lines will be required to relatively peaky end-use like residential years from now. (Southern Company, meet future demand, while maintaining air-conditioning (such as through No. 257 at p. 3). For different reasons, or improving system reliability. Long increased efficiency standards) will Mercatus Center also argues that higher term system reliability will be
have less ofan affect on overall system efficiency standards would not improve determined by how accurately system 

### capacity. andcould possibly reduce electric planners anticipate electricity demand

New NEMS-BRS standard case rus system reliability. As stated in their and whether they take steps to ensure New NEMS-BRS standard case runsin peak demand the addition of sufficient electricity 

### were conducted with the entire set of arguments pertaining to peak demand the addition of sufficient electricity

leretiv co sectorale w end tirset ofad impacts, theybelieve higher standards generating, transmission and alternative sectoratl end-use ai shap, could lead to increased use ofair- distribution capacity to meet this including the updated residential air- conditioning products due their lower expected demand, while maintaining conditioning load shapes, to determine operating costs. During periods ofpeak adequate reserve margins. For example, their impact on system capacity. These demand this could lead to an overall EIA's Annual Energy Outlook 2001

new runs were conducted with the 2000 increase in air-conditioning. The forecast that the cumulative version ofNEMS-BRS by replacing the resulting increase in peak demand requirements for additional electricity existing set ofsectoral load shapes with heightens the risk ofblackouts. generating capacity by 2020 might range the alternative versions. As expected, (Mercatus Center, No. 242 at pp. 9-10). from roughly 350 gigawatts, assuming a the installed generation capacity DOE agrees with the assertion ofthe low rate of economic growth, to nearly reductions based on the new NEMS- Southern Company that the primary 500 gigawatts, assuming a BRS runs are lowerthan those produced effects of the proposed efficiency comparatively high rate ofeconomic for theJanuary 22 final rule. In the case standards are so long term (more than growth. This compares to a difference of oftoday's final rule, the installed 10 years in the future) that they are very approximately 4 gigawatts between the generation capacity reduction is now unlikely to have any significant effect estimated effects on capacity estimated to be 8.7 GW as opposed to on electric system reliability. While requirements ofa SEER 12 standard and the 10.6 GW provided in the January 22 DOE still believes that near term those ofa SEER 13 standard. The range final rule. A complete set ofupdated improvements in energy efficiency can ofestimated requirements for additional installed generation capacity reduction help improve the reliability of systems electricity generating capacity that impacts can be found in Appendix M of that now have inadequate generating or result from varying assumptions about the TSD. transmission capacity (e.g., California), the rate of change in end-use technology 

### 36392 

## EE-RM/STD-98-44G-30q Federal Register/Vol. 67, No. lOO/Thursday, May 23, 2002/Rules and Regulations

for a given amountofannual energy savings. See 66 

### FR 7181.



### As a result ofdiscovering several problems with the load shapes within NEMS-BRS. an alternative set of sectoral end-use load shapes were assigned to the 2002 

### version ofNEMSBRS thatwere distinctly different than the load shapes used inpriorversions ofthe model (includingthe 2000 

### and 2001 

### versions). Forexample. inthe case oftheresidential air-conditioning enduse, the alternative version consists of thirteenregional load shapesbased on regions defined bythe North American Electric Reliability Council (NERC) as compared to the single national load shapeusedin priorversions. Depending

on theregion ofthe country.the thirteen air-conditioning load shapes have CLFs ranging from 0.063 

### to 0.183 

### and generally peak in eitherJuly orAugust. Althoughthe alternative load shapes specific to theresidential airconditioningend-use are more representative (e.g., the loads peak duringthe summer months), switching to the entire set ofalternative sectoral end-use load shapesresults insmaller peak-to-average system loads. As a consequence. the overall built-up system load shapes usingthe alternative sectoral end-use load shapes have less pronouncedpeaks than those that are used in prior versions ofNEMS-BRS. Becausethebuilt-up system loads within the 2002 

### version ofNEMS-BRS have less pronouncedpeaks, the impact ofreducing the energy use on a relativelypeakyend-uselike residential air-conditioning (such as through increased efficiency standards) will have less ofan affect on overall system capacity.

New NEMS-BRS standard case runs were conducted withtheentire set of alternative sectoral end-useload shapes, includingthe updatedresidential airconditioning load shapes, to determine their impact on system capacity. These

new runswere conducted with the 2000 

### version ofNEMS-BRS byreplacing the existing set ofsectoral load shapes with the alternative versions. As expected. the installedgenerationcapacity reductionsbased on thenewNEMSBRS runs are lowerthanthoseproduced for theJanuary 22 final rule. In

### the case oftoday's final rule, the installed generation capacityreduction is now estimatedto be 8.7 

### GW as opposedto the 10.6 

### GW provided intheJanuary 22 

### final rule. A complete set ofupdated installedgeneration capacityreduction impacts can be found inAppendixM of the TSD. 2. Reliability As stated intheJuly 25 

### SNOPR, DOE has considered as a benefit the potential ofthe proposed standards to improve the reliability ofthe electric generation and distribution systembyreducing the need for installedgeneration capacity. See

### July 25 

### SNOPR, 66 

### FR 38841.



### Several comments, while not disputingDOE's conclusion that air conditioner standards would improve electric system reliability, argued that the potential for improvingreliability wouldbereduced by going forward withtheproposed standards (12 

### SEER) instead ofthose standards issued inthe January 22 fmal rule (13 

### SEER). (ACEEE, No. 284 

### atp. 2; 

### NRDC, No. 250 

### at p. 23; 

### NEEP, No. 273 

### at p. 1; 

### ASE. No. 282 

### at p. 2; 

### CEC, No. 263 

### at p. 1;

### National Association ofRegulatory Utility Commissioners (NARUC), No. 260 

### at p. 2).



### Southern Company, which states that raisingthe standard from 12

### to 13 

### SEER will have minimal effect onpeak demand growth, believes this efficiency increase will have even less effect on reliability, becausethere is not a direct relationshipbetween peak demand growth andreduced electric system reliability. The Southern Company claims thatthe reduction in peak demand from higher efficiency standards is so long-term as to have no bearing oncurrent problems. It

### is entirelypossiblethatthehigher efficiency levels could exacerbate a supply glut inthe regions now experiencing shortages ten to fifteen years from now. (Southern Company, No. 257 

### at p. 3). For different reasons, Mercatus Center also argues thathigher efficiency standardswould notimprove and could possiblyreduceelectric system reliability. As stated intheir arguments pertainingto peak demand impacts, theybelieve higher standards could lead to increaseduse ofairconditioningproducts duetheir lower operatingcosts. During periods ofpeak demandthis could lead to an overall increase in air-conditioning. The resultingincrease inpeak demand heightensthe risk ofblackouts. (Mercatus Center, No. 242 

### at pp. 9-10).



### DOE agrees withthe assertion ofthe Southern Companythattheprimary effects ofthe proposed efficiency standards are so long term (more than 10

### years inthe future) thatthey are very unlikelyto have any significant effect

onelectric systemreliability. While DOE still believes that nearterm improvements in energy efficiency can help improve the reliability ofsystems that nowhave inadequate generating or transmission capacity (e.g., California), theprimary effect ofenergy efficiency standards is likely beyondthe long-term planninghorizon ofmost electric systems. This means that long term electric system reliability is determined primarily by howwell system planners (generators, utilities, regulators) anticipate future loads, notby how large those loads will be. In 

### other words, planners inmost areas ofthe country generally do not attemptto provide enough generating capacity to satisfy peak loads as the marginal cost for satisfying peak loads is generally cheaperusingmeans other than the construction oflarge generating facilities (e.g., theuse ofrelatively small "peaker" plants orthe purchase of supply from outside the planning region). DOE knows ofno analysis whichhas found a correlation between system load factor and system reliability

overthe longterm. Nor is DOE aware of any analysis that found a correlation between the longterm rate ofgrowth of electricity demand and system reliability

.

Higher efficiency standards for central air conditioners and heat pumps are expectedto reduce significantly the peak loads ofelectric systems inthe future, thus enabling a reduction inthe number ofnew power plants and transmission lines required to meet future demand. Electric system planners will take these efficiency improvements and other factors affecting future electricity demand into account when estimating howmany new plants and transmission lines will be required to meet future demand, while maintaining

orimproving system reliability. Long term system reliability will be determined byhowaccurately system planners antiCipate electricity demand andwhether theytake steps to ensure the addition ofsufficient electricity generating, transmission and distribution capacityto meet this expected demand, while maintaining adequate reserve margins. For example. EIA's Annual Energy Outlook 2001 

### forecast that the cumulative requirements for additional electricity generating capacityby 2020

### might range from roughly 350

### gigawatts, assuming a lowrate ofeconomic growth, to nearly 500

### gigawatts, assuming a comparativelyhighrate ofeconomic growth. This compares to a difference of approximately 4 

### gigawatts betweenthe estimated effects on capacity requirements ofa SEER 12 

### standard and those ofa SEER 13 

### standard. The range ofestimatedrequirements for additional electricity generating capacity that result from varying assumptions about therate ofchange in end-use technology

## EE-RM/STD-98-440- 30q

Federal Register/Vol. 67, No. 100/Thursday, May 23, 2002/Rules and Regulations 36393

(in all sectors) and the rate ofeconomic today's 10 SEER baseline equipment. requirement. York claims that imposing growth is even greater. Furthermore, because variable speed a TXV requirement in this rule would 0H. Other Issues and modulating equipment mitigate the circumvent the test procedure. Also, it H. 

## ~Other Issues cyclic losses that are due to widespread asserts that key data for evaluating the
1. Minimum EER Requirement oversizing, the aggregated peak demand impacts ofTXVs on system performance

Several comments were in support of ofa group ofmodulating air have not been thoroughly reviewed by

aminimum EER requirement to ensure conditioners with lower EERs will likely all interested parties. (York, No. 270 at

more efficient operation at high outdoor be lower than that ofa similar group of p. 4). temperatures during periods when onon-modulating air conditioners with As stated in the January 22 final rule, eletricity use by air conditioners is at higher EERs at the same SEER level, a performance-based approach is also tricity use a co o at Also, utilities have the opportunity with our preference and is certainly in the its peak. ACEEE, No. 284 at p. 3; Austin modulating equipment to offer spirit ofEPCA. See 66 FR 7183-7184. Energy, No. 243 at p. 1;PG&E, No. 274 customers the option to allow the utility As such, the SEER test procedure, not a at p. 1). NARUC passed a resolution into low- TXV requirement, appears to be the July, 2000, urging DOEtoraise the to "lock" the equipment into low- TXV requirement, appears to be the Ju 2000, urging DE to raise thcapacity operation in return for a lower most appropriate vehicle for assuring standard by 30 percent (i.e., to 13 SEER) standard by

30 percent (e.,electricity price. that an equipment's efficiency rating is with a minimum peak efficiency Although DOE is interested in based on its performance characteristics. performance requirement. (NARUC, No. reducing peak demand, the primary In fact, TXVs already receive credit in 261 at p. 2). NEEP also supports a purpose of appliance efficiency the test procedure because oftheir statndard ofat least 13 SEER with a standards is to save energy. An EER superior cyclic performance. DOE is not

conr sponding minimum EER of 11.6. standard could be counterproductive by eager to circumvent the test procedure, (NEi'P, No. ?73 at p. 2). NRDC believes discouraging variable speed and particularly when the key data either are that DOE cannot set a standard at the modulation, which can save substantial not available or have not been hig l.st level that is technologically amounts ofenergy over the cooling thoroughly reviewed by all interested feasible and economically justified ifit season while providing consumers with parties. That said, DOE favors a SEER does n t include in that standard a additional benefits not found in single test procedure that fairly evaluates minin im EER requirement. NRDC adds speed and non-modulating equipment. equipment performance under that tUi; recommendation does not Finally, although DOE believes that conditions that represent those

r. ean ttiat EER would drop as SEER EPCA permits adoption ofan EER encountered in the field. DOE prefers to increases; it simply reflects NRDC's standard, for the foregoing reasons, we encourage correct charging or proper co.lcern that EER might not rise as do notbelieve that the Act requires or airflow but recognizes that practical quickly without a separate regulation suggests that we establish such a barriers exist. Although no immediate than it would with one. (NRDC, No. 250 standard under the circumstances here. action will be taken to address field
at p. 32). Given the adopted standard levels, a equipment performance in the test

York and Southern Company are both national EER standard isboth procedure currently under revision, opposed to a minimum EER unnecessary and undesirable. Most attempts may be made in future test requirement. York asserts that an EER benefits accruing from an EER standard procedure revisions to evaluate whether standard could be counter-productive will likely accrue from the SEER the SEER test procedure can and should by discouraging variable speed and standards alone, without the associated be amended to better reflect equipment modulating equipment, which could burdens on manufacturers and the performance under improper charge or

save consumers substantial amounts of disincentives to apply energy-saving airflow.
money over the cooling season. (York, modulating technologies. Therefore, we In sum, this rulemaking does not No. 270 at p. 4). Southern Company have not adopted an EER standard in adopt a TXV requirement. Any believes that, regardless ofcost- this rule. alterations in the SEER test procedure effectiveness, DOE does not possess further to encourage the use ofTXVs regulatory authority to specify 2. TXV Requirement may be undertaken in a separate performance measures necessary to ACEEE and PG&E were both in rulemaking process after proposed insure cost savings to consumers (SEER) support ofa prescriptive requirement revisions to the test procedure have and peak demand benefits to electricity for adaptive expansion devices such as been finalized. We also encourage suppliers (EER). (Southern Company, thermostatic expansion valves (TXV). parties interested in encouraging the No. 257 at p.4). (ACEEE, No. 284 at p. 3; PG&E, No. 274 broader application ofTXVs to pursue

As stated in theJanuary 22 final rule, at p. 1). NEEP was more expansive on other avenues. These include voluntary DOE is still convinced that the stringent the topic by stating that the evidence in programs like Energy Star, tax physical relationship between EER and the record supports a TXV requirement. incentives, and other State and local SEER in equipment rated through the NEEP claims that TXVs provide initiatives, which can all be tied to the adopted standard of 12 SEER, which is additional efficiency benefits, over and presence of a device like a TXV. States comprised exclusively ofnon- above the benefits captured in the SEER also have the opportunity to apply to us modulating equipment, will remain rating procedure. They assert that for an exemption from preemption that intact for the foreseeable future. Thus, central air conditioners with TXVs would allow them to implement their there is no strong need for a minimum suffer lower efficiency degradation own requirements based on their own EER requirement in addition to a when a unit is improperly installed. The unique circumstances. minimum SEER standard. See January result is that TXVs can provide 12Exemption From DOE Standards 22 final rule, 66 FR 7183. percent energy savings over and above

With regard to the use ofvariable the energy savings associated with The Council of State Governments, speed or modulating technologies, even increasing SEERs. (NEEP, No. 273 at pp. Eastern Regional Conference (ERC) ifthese technologies eventually 2,4). states that ifDOE fails to implement a predominate, and thereby reduce EERs York agrees with DOE's decision in 13 SEER standard, then ERC member in typical equipment, they would still theboth the January 22 final rule and States will seek a waiver from the reduce peak demand compared to the July 25 SNOPR not to impose a TXV Federal standard and implement the 

### EE-RM/STD-98-440-**~oq** 

### Federal Register/Vol. 67, No. IOO/Thursday, May 23, 2002/Rules and Regulations 36393

(in all sectors) and the rate ofeconomic growth is even greater.
H. OtherIssues
1. Minimum EER Requirement

Several comments were in support of

a minimum EER requirement to ensure
more efficient operation at high outdoor temperatures during periods when electricity use by air conditioners is at its peak. (ACEEE, No. 284 at p. 3; Austin Energy. No. 243 at p. 1; PG&E. No. 274 at p. 1). NARUC passed a resolution in July. 2000. urging DOE to raise the stancb.rd by 30 percent (i.e.• to 13 SEER) with a minimum peak efficiency performancerequirement. (NARUC. No. 261 at p. 2). NEEP also supports a sta.>\dard ofat least 13 SEER with a**L~n**gsponding minimum EER of 11.6.**(N:Sl~P.** No. ?73 at p. 2). NRDC believes thatjJOE cannot set a standard at the hig.1t:.,t level that is technologically feas.\b1e and economicallyjustified ifit does n'Jt include in that standard a minLn \m EER requirement. NRDC adds t1at

### L1' ;recommendation does not

rr.ean ttat EER would drop as SEER**in>~reases:** it simply reflects NRDC's COI:cern that EER might not rise as quickly without a separateregulation than it would with one. (NRDC, No. 250 at 

### p. 32).

York and Southern Company are both opposed to a minimum EER requirement. York asserts that an EER standard couldbe counter-productive by discouraging variable speed and modulating equipment. which could

save consumers substantial amounts of money overthe cooling season. (York. No. 270 at p. 4). Southern Company believes that. regardless ofcosteffectiveness. DOE does not possess regulatory authority to specify performance measures necessary to insure cost savings to consumers (SEER) and peak demandbenefits to electriCity suppliers (EER). (Southern Company. No. 257 at p. 4).

As stated in theJanuary 22 final rule. DOE is still convinced that the stringent physical relationshipbetweenEER and SEER in equipmentrated through the adopted standard of 12 SEER. which is comprised exclusively ofnonmodulating equipment, will remain intact for the foreseeable future. Thus. there is no strongneed for a minimum EER requirement in addition to a minimum SEER standard. SeeJanuary 22 final rule. 66 FR 7183.

With regard to the use ofvariable speed or modulating technologies. even ifthese technologies eventually predominate. and thereby reduce EERs in typical equipment. they would still reduce peak demand compared to today's 10 SEER baseline equipment. Furthermore,because variable speed and modulating equipment mitigate the cyclic losses that are due to widespread oversizing. the aggregated peak demand ofa group ofmodulating air conditioners with lower EERs will likely be lowerthanthat ofa similar group of non-modulating airconditioners with higher EERs at the same SEER level. Also. utilities have the opportunity with modulating equipment to offer customers the option to allow the utility to "lock"the equipment into lowcapacity operation in return for a lower electricityprice.

Although DOE is interested in reducing peak demand. the primary purpose ofappliance efficiency standards is to save energy. An EER standard couldbe counterproductiveby discouraging variable speed and modulation. which can save substantial amounts ofenergy overthe cooling

season while providingconsumers with additional benefits not found in single speed and non-modulating equipment.

Finally, although DOE believes that EPCA permits adoption ofanEER standard. for the foregoing reasons. we do notbelieve that the Act requires or suggests that we establish such a standard under the circumstances here. Given the adopted standard levels, a national EER standard is both unnecessary and undesirable. Most benefits accruing from an EER standard will likely accrue from the SEER standards alone. withoutthe associated burdens on manufacturers and the disincentives to apply energy-saving modulatingtechnologies. Therefore. we have not adopted an EER standard in this rule.
2. TXV Requirement

ACEEE and PG&E were both in support ofa prescriptive requirement for adaptive expansion devices such as thermostatic expansion valves (TXV). (ACEEE, No. 284 at p. 3; PG&E, No. 274 at p. 1). NEEP was more expansive on the topic by stating that the evidence in the record supports a TXV requirement. NEEP claims that TXVs provide additional efficiency benefits. over and above thebenefits captured inthe SEER ratingprocedure. They assert that central air conditioners with TXVs suffer lower efficiency degradation when a unit is improperly installed. The result is that TXVs can provide 12 percent energy savings over and above the energy savings associated with increasing SEERs. (NEEP, No.273 at pp. 2.4).

York agrees with DOE's decision in theboth theJanuary 22 final rule and the July 25 SNOPRnot to impose a TXV requirement. York claims that imposing

a TXV requirement in this rule would circumvent the test procedure. Also. it asserts that key data for evaluating the impacts ofTXVs on system performance have not been thoroughly reviewed by all interested parties. (York. No. 270 at p.4).

As stated in the January 22 final rule.

a performance-based approach is also

our preference and is certainly in the spirit ofEPCA. See 66 

### FR 7183-7184. As such. the SEER test procedure. not a TXV requirement, appears to be the most appropriate vehicle for assuring that an equipment's efficiency rating is based on its performance characteristics. In fact. TXVs already receive credit in the testprocedure because oftheir superior cyclic performance. DOE is not eager to circumvent the test procedure. particularly when the key data either are not available or have not been thoroughly reviewed by all interested parties. That said. DOE favors a SEER test procedure that fairly evaluates equipment performance under conditions that represent those encountered in the field. DOE prefers to encourage correct charging or proper airflowbutrecognizes that practical barriers exist. Although no immediate action will be taken to address field equipmentperformance in the test procedure currently underrevision. attempts may be made in future test procedure revisionsto evaluate whether the SEER test procedure can and should be amendedto betterreflect equipment performance under improper charge or airflow.

In sum. this rulemaking does not adopt a TXV requirement. Any alterations in the SEER test procedure further to encourage the use ofTXVs may be undertaken in a separate rulemaking process after proposed revisions to the test procedure have been finalized. We also encourage parties interested in encouraging the broader application ofTXVs to pursue other avenues. These include voluntary programs like Energy Star. tax incentives. and other State and local initiatives, which can all be tied to the presence ofa device like a TXV. States also have the opportunity to apply to us for an exemption from preemption that would allow them to implement their

own requirements based ontheir own unique circumstances.
3. State Exemption From DOE Standards

The Council ofState Governments. Eastern Regional Conference (ERC) states that ifDOE fails to implement a 13 SEER standard. then ERC member States will seek a waiver from the Federal standard and implement the

## EE-RM/STD-98-440-:3D 36394 Federal Register/Vol. 67, No. 100/Thursday, May 23, 2002/Rules and Regulations

higher standard atthe State level, as the practicable. (TNRCC, No. 286 at p. 2). At date ofpublication and the dates on States ofCalifornia and Oregon are the public hearing on the July 25 which the rule applies in the statutory currently doing. ERC goes on to quote SNOPR, representatives oftheCalifornia schedule is not needed for central air 42 U.S.C. 6297(d) "Waiver ofFederal Energy Commission, PG&E, and conditioner and central air conditioning Preemption" where it states that "Any Goodman also urged DOE to establish heat pump manufacturers to come into
state * * *which provides for any an earlier effective date ifa 12 SEER compliance with a 12 SEER standard. energy conservation standard forany standard was adopted. (Hearing Moreover, if,as aresult ofunforeseen type ofcovered product for which there Transcript, atpp. 142-144 and 164- circumstances, a particular is a Federal energy conservation 165). In initialwritten comments, ARI manufacturer can show hardship, standard * * *may file apetition with stated a willingness to consent to the inequity, orunfair distributions of the Secretary (ofEnergy) requesting that proposed 5-years-from-date-of- burdens, the standard would be subject such Stateregulation become effective publication effective date for the to case-by-case exception pursuant to with respect to such covered product." proposed 12 SEER standard. (ARI, No. the authority ofthe DOE Office of (ERC, No. 241-JJ atp. 1). 259 at p. 36). In supplemental Hearing and Appeals under section 504

DOE will promptly act upon any comments submitted afterthe close of ofthe DOE Organization Act (42 U.S.C. petition forwaiver that may be the comment period, ARI responded to 7194), as implemented at subpart Bof submitted by a State pursuant to section the comments thatrequested an earlier 10 CFR part 1003. On the basis ofthe 327(d) ofEPJA (4? U.S.C. 6297(d)). effective date by stating that ARI would foregoing, DOE has decided to fix Section 327 d) pro 'ides that DOE must accept a compliance date ofJanuary 23, January 23, 2006, as the date on which prescribe a lule graiiting a waiver from 2006, the same effective date as the amended standards set forth in Federal pree r.ption ifthe State provided in theJanuary 22 final rule today's final rule apply to the establishes b i a preponderance ofthe (ARI, No. 289). ARI stated that any manufacture of central air conditioners evidence tha ia State regulation is agreement on its part to an earlier and central air conditioning heat needed to meit "unisual and effective date should not be deemed as pumps. compelling State or local energy or a precedent by DOE or concession by 5. Environmental Impacts water interests,' as the' phrase is ARI with respect to future rulemaking S c s defined by the statute ( :2 U.S.C. proceedings. Several comments stated that there 6297(d)(1)(B)). Section 327(d) further proce

. would be greater environmental benefits provides that DOE may iot grant a Although section 325(d) ofEPCA does under a 13 SEER standard. (Goodman, waiver ifinterested persons establish by n ot 

### pecifically state that initial No. 269 at p. 2; Austin Energy, No. 243

apreponderance of !heevidence that amended standards become applicable at p. 1; State ofConnecticut, No. 279 at the State regulation would significantly to the manufacture ofcovered products p. 2; State of Maine, No. 254 at pp. 1- burden manufacturing, marketing, after a certain number ofyears elapse 2). The Attorneys General from the distribution, sale, or servicing ofthe following publication ofa notice offinal States ofNew York and Massachusetts covered product on a national basis (42 rulemaking, it provides a schedule of asserted that DOE's assessment of U.S.C. 6297(d)(3)). Finally, section specific dates for the promulgation ofa environmental impact used the wrong 327(d) establishes the timetable and final rule and of specific dates on which "no action" scenario; in their view, the procedure that must be followed for an initial amended SEER and aninitial correct "no action" scenario orbaseline acting upon petitions for waiver from amended HSPF established by afinal for measuring impacts is the SEER 13 Federal preemption. rule would apply tothe manufacture of standard in theJanuary 22 rule
new central air conditioners and new (Attorneys General of New York and 4. Effective Date central air conditioning heat pumps. In Massachusetts, No. 277 at p. 11). In

DOE received written and oral the past,in circumstances where DOE addition to the carbon and NOx
comments with regard to DOE's was unable to publish a final rule by a emissions, the Attorneys General state proposed effective date (i.e.,the date deadline date established by a statute that coal-fired power plants are when the covered products must with scheduled compliance dates, DOE dominant sources ofmercury and comply with thenew standards for the has had apractice of adjusting the particulate pollution nationwide and proposed amended standards contained statutorily scheduled date such arule thatby ignoring these impacts ofits in theJuly 25 SNOPR). In written becomes enforceable to allowfor the SNOPR, DOE violated the National comments, NRDC notes thatthe same amount ofleadtime as provided Environmental Policy Act (NEPA). proposed effective date in theJuly 25 in the original statutory schedule. (Attorneys General ofNew York and SNOPR is approximately six months However, the application ofthis Massachusetts, No. 277 at pp. 14-15). later than that inthe January 22 final practice in any particular rulemaking is DOE disagrees with the comment that rule, and claims that any delay in the subject to public comment and to DOE failed to comply with NEPA in effective date ofnew standards would exceptions in special circumstances. proposing 12 SEER standards in theJuly reduce theirbenefits. NRDC adds that See, e.g., 61 FR 10622,10625 (March 14, 25 SNOPR. As previously discussed, section 325(d) ofEPCA (42 U.S.C. 1996) (final rule establishing the DOE does not believe the standards in 6295(d)) does not require DOEto Alternative FuelVehicle Acquisition the January 22 final rule constitute the provide a five-year lead time for Program with a compliance schedule baseline for assessing the impact of compliance by manufacturers after thatvaried from the statutory schedule today's final rule because those publication ofafinal rule. (NRDC,No. established by the Energy Policy Act of standards never became effective. The 250 at p. 34). TNRCC recommends that 1992 and thatwas subject to case-by- correct baseline, and the one used for rather than makingthe proposed case exceptions). In this rulemaking, all the "no action" alternative in theEA, standards effective in 2006, DOE should interested persons who have an interest are the currently effective NAECA accelerate the effective date ofthe in the date thatthe final rule becomes standards. standards fromthe year 2006 to 2004, enforceable-including representatives DOE's environmental assessment (EA) thereby providing improved energy ofall ofthe manufacturers who would examined the environmental impacts of efficiency and resultant airquality have to comply with thatrule-agree all trial standard levels being benefits as soon asreasonably thatthe full amount oftime between considered. See Section VIII.A. ofthis 

### 36394 

## EE-RM/STD-98-440-?OLIFederal Register/Vol. 

### 67, No. 

### 100/Thursday, May 

### 23, 2002/Rules and Regulations

higher standard atthe State level, as the States ofCalifornia andOregon are currently doing. ERC goes onto quote 42 U.S.C. 6297(d) "Waiver ofFederal Preemption" where it statesthat "Any state 

### * * * whichprovidesfor any energy conservation standard for any type ofcovered product for whichthere is a Federal energy conservation standard 

### * * * may file a petitionwith the Secretary (ofEnergy) requesting that such Stateregulationbecome effective with respect to suchcovered product." (ERC. No. 241-D

### atp. 1).

DOE will promptlyact upon any petition for waiverthatmay be submitted by a State pursuantto section 327(d) ofEP':'A**(4~** 

### U.S.C. 6297(d)). Section 327 'd) pro' idesthatDOE must prescribe a 1

### ule grauting a waiver from Federal pree !l

### ption ifthe State establishes b T

### a pn.'p'lnderance ofthe evidence tha H 

### State regulation is needed to me**~t** 

### "Un,l&ual and compelling State or local energy or water interests,' as the'phrase is defmedbythe stltute (, ':2 U.S.C. 6297(d)(1)(B)). Section .127(d) further provides thatDOr may 'lotgrant a waiver if

### interestedpersons establish by

a preponderanceof**~he ~vidence**  

### that the Stateregulation would significantly burden manufacturing. marketing. distribution, sale. or servicing ofthe covered product on a national basis (42 U.S.C. 6297(d)(3». Finally. section 327(d) establishesthe timetable and procedure that must be 

### followed for acting uponpetitions for waiver from Federal preemption.
4. Effective Date

DOE received written and oral comments withregard to DOE's proposed effective date (i.e., 

### the date when the covered products must comply with the new standards for the proposed amended standards contained intheJuly 25 SNOPR). In written comments. NRDC notes thatthe proposed effective date intheJuly 25 SNOPR is approximately six months laterthanthatinthe January 22 final rule. and claims that any delay inthe effective date ofnew standards would reduce theirbenefits. NRDC addsthat section 325(d) ofEPCA (42 U.S.C. 6295(d)) does notrequireDOE to provide a five-year leadtime for compliancebymanufacturers after publication ofa fmal rule. (NRDC. 

### No. 250 at p. 34). TNRCC recommends that ratherthan makingthe proposed standards effective in 2006. DOE should accelerate the effective date ofthe standards from theyear 2006 to 2004. thereby providingimprovedenergy efficiency and resultant air quality benefits as soon as reasonably practicable. (TNRCC. No. 286 at p. 2). At the publichearing on theJuly 25 SNOPR. representatives oftheCalifornia Energy Commission, PG&E. and Goodman also urged DOE to establish

an earliereffective date ifa 12 SEER standard was adopted. (Hearing Transcript. at pp. 142-144and 164- 165). In

### initialwritten comments. ARl stated a willingnessto consentto the proposed 5-years-from-date-ofpublication effective date for the proposed 12 SEER standard. (ARI. No. 259 at p. 36). In supplemental comments submitted after theclose of the comment period. ARl responded to the comments thatrequested an earlier effective date by statingthat ARl would accept a compliance date ofJanuary 23. 2006. the same effective date as provided intheJanuary 22 final rule (ARl. No. 289). ARI statedthat any agreement onits partto an earlier effective date shouldnotbe deemed as
a precedentbyDOE or concessionby ARI withrespect to future rulemaking proceedings.

Although section 325(d) ofEPCA does not specifically statethat initial amended standardsbecome applicable tothe manufacture ofcovered products after a certain number ofyears elapse following publication ofa notice offinal rulemaking. it provides a schedule of specific dates for the promulgation ofa final rule and ofspecific dates onwhich

aninitial amended SEER and an initial amendedHSPF establishedby a final rule would applytothe manufacture of

new central air conditioners and new central airconditioningheat pumps. In the past. incircumstances where DOE

was unable to publish a final ruleby a deadline date establishedby a statute with scheduled compliance dates. DOE has had a practice ofadjusting the statutorily scheduled date such arule becomes enforceable to allow for the

same amount ofleadtime as provided inthe original statutory schedule. However. the application ofthis practice inanyparticularrulemaking is subject to public commentandto exceptions in special circumstances. 

### See, e.g., 61 FR 10622. 10625 (March 14. 1996) (final rule establishingthe AlternativeFuelVehicle Acquisition Program with a compliance schedule thatvariedfrom the statutory schedule establishedbytheEnergy Policy Act of 1992 andthatwas subject to case-by-
case exceptions). In 

### this rulemaking. all interested persons whohave an interest inthe date thatthe final rulebecomes enforceable-includingrepresentatives ofall ofthe manufacturers whowould have to comply withthatrul&-agree thatthe full amount oftimebetween date ofpublication and the dates on which the rule applies in ilie statutory schedule is not needed for central air conditioner and central air conditioning heat pumpmanufacturers to come into compliance witha 12 SEER standard. Moreover. if. 

### as aresult ofunforeseen circumstances. a particular manufacturer can showhardship. inequity. or unfair distributions of burdens, the standard would be subject to case-by-case exception pursuantto the authority ofilie DOE Office of Hearing and Appeals under section 504 ofthe DOE Organization Act (42 U.S.C. 7194). as implemented at subpart B of 10 CFRpart 1003. Onthe basis ofilie foregoing, DOE has decided to fix January 23. 2006, as ilie date on which the amended standards set forth in today's final rule applyto the manufacture ofcentral air conditioners and central air conditioning heat pumps. 5. Environmental Impacts

Several comments stated iliat there wouldbe greater environmental benefits undera 13 SEER standard. (Goodman. No. 269 at p.2; Austin Energy. No. 243 atp. 1; State ofConnecticut. No. 279 at p. 2; State ofMaine. No. 254 at pp. 1- 2). TheAttorneys General from the States ofNew York and Massachusetts assertedthat DOE's assessment of environmental impact used ilie wrong "no action" scenario; in ilieir view, the correct "no action" scenario orbaseline for measuring impacts is ilie SEER 13 standard inthe January 22 rule (Attorneys General ofNew York and Massachusetts, No. 277 at p. 11). In 

### additionto ilie carbon andNOx emissions, ilie Attorneys General state that coal-fired power plants are dominant sources ofmercury and particulate pollution nationwide and thatby ignoring these impacts ofits SNOPR, DOE violated the National Environmental Policy Act (NEPA). (Attorneys General ofNew York and Massachusetts, No. 277 at pp. 14-15).

DOE disagrees wiili the comment iliat DOE failed to comply wiili NEPA in proposing 12 SEER standards in theJuly 25 SNOPR. As previously discussed, DOE does notbelieve the standards in theJanuary 22 final rule constitute the baseline for assessingtheimpact of today's final rule becausethose standards neverbecame effective. The correctbaseline. andthe oneused for the "no action" alternative inthe EA.

are the currently effective NAECA standards.

DOE's environmental assessment (EA) examinedtheenvironmental impacts of all trial standard levelsbeing considered. See SectionVIII.A. ofthis

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Supplementary Information. All ofthe NOx and other environmental sector, which is less labor intensive than alternatives considered in DOE's emissions. Appendix M of the TSD other sectors ofthe economy,' 9 analysis were found to have beneficial includes an updated set ofpower plant producing a gain ofjobs in the environmental impacts compared to the emission impacts. The changes resulting manufacturing sector that is less than "no action" alternative. Under the "no- from this NEMS-BRS error correction the loss ofjobs in other sectors ofthe action" or base case alternative, the do not affect DOE's finding ofno economy. Also, a loss ofjobs results in minimum efficiency requirements significant impact. the utility sector due to its loss of would remain at their current levels: ament Imactsrevenues. As annual consumer energy cooling efficiency of 10 SEER for split s savings begin to exceed annual new system air conditioners and heat pumps, With regard to the impact that expenditures on air conditioners,

a cooling efficiency of9.7 SEER for amended central air conditioner and eventually the new standards will single package system air conditioners heat pump standards have on national produce a net gain in national and heat pumps, aheating efficiency of employment, both ARI and Rheem are employment. 6.8 HSPF for split system heat pumps, concerned that high efficiency standards The increases or decreases in the net and a heating efficiency of6.6 HSPF for can lead tojob losses in the air- demand for labor in the economy single package system heat pumps. The conditioning industry's manufacturing estimated by the input/output model primary focus of theEA is the effect of sector. Rheem states that fewer units due to air conditioner and heat pumps alternative efficiency stand: rds or, air will be sold due tothe higher purchase standards are likely to be very small

resources resulting from de, reased prices associated with more efficient relative to total national employment. emissions from fossil-fuelec elcztricity equipment. Fewer equipment sales will The following reasons were given in the generation. For each ofthe t ial sten lard in turn reduce the need for personnel in January 22 final rule for the conclusion levels, DOE used the NEMS- ERS model manufacturing facilities and design that any modest changes in employment
to calculate total power sectc r emisi groups. (Rheem, No. 248 at p. 3). ARI were in doubt (66 FR 7192): ofnitrogen oxide, sulfur dioxice, and states that DOE' decision to issue 13 * Unemployment is now at the lowest carbon. As explained in Sectionr VIII A SEER standards in its January 22 inal rate in 30 years. Ifunemployment ofthis Supplementary Information, Gn rule was in part based onthe fact that remains very low during the period the basis of the EA, DOE determined unemployment was then at the lowest when the standards are put into effect, rate in 30 years. Because the current that the environmental effects rate in 30 years. Because the current itis unlikely that the standards alone associated with the standard levels in state of the natonal economy is could result in any change in national certainly worse than when DOE issued today's final rule are not significant. its anu 22 final rule ARI cla that employment levels;

DOE has corrected an error that DOE 13 SEER standard wouldav auch Neither the BLS data nor the inputdiscovered in the NEMS-BRS, the worse impact on the air-conditioning output model used by DOE include the model used by DOE to estimate both industry than initially forecasted by quality or wage level of the jobs. The peak power and power plant emission DOE. In any case, ARI points out that losses or gains from any potential impacts due to appliance standards. As DOE's analysis demonstrates that 12 employment change may be offset ifjob discussed earlier (see Peak Power), DOE SEER standards would have quality and pay also change; and conducted a comprehensive review of approximately 50 percent fewer job * The net benefits or losses from the end-use load shapes used by NEMS- losses compared to 13 SEER standards. potential employment changes are a BRS, not only for the residential sector ARI asserts that this difference in job result ofthe estimated net present value and, specifically, the air-conditioning losses is significant and demonstrates ofbenefits or losses likely to result from end-use, but for the commercial, that the proposed 12 SEER standards are air conditioner and heat pump industrial, and transportation sectors as a much better choice. (ARI, No. 259 at standards. It may not be appropriate to well. Several problems were discovered pp. 11-12, 31-32). identify and consider separately any with the load shapes and, as a result, an OOE has a much different perspective employment impacts beyond the alternative set of sectoral end-use load on DOE's employment impact analysis. calculation ofnet present value. shapes were assigned to NEMS-BRS. By OOE states that it is purely speculative Although, as noted by ARI, implementing a new set of sectoral load to claim that there is a distinguishable unemployment is no longer as low as it shapes, NEMS-BRS estimates greater difference between the impacts that 12 was at the time the January 22 final rule
power plant emission impacts (inthe SEER and 13 SEER standards have on was issued, the annual unemployment form ofreduced CO2 and NOx the national economy. The accuracy of rate in 2001, (4.8 percent) is only emissions) from increased central air the macroeconomic model used by DOE slightly higher than the annual rates for conditioner and heat pump standards. to estimate employment impacts does 1998, 1999, and 2000 and still less than With regard to NOx emissions, the not allow for such a distinction. (OOE, the annual rates for all other years in the actual reductions that result from more No. 275 at pp. 3-4). 1990's. 2° Thus, after discounting the stringent efficiency standards are likely As stated in the January 22 final rule, first factor cited above, and considering

to be less than the original DOE DOE estimated the impacts of the new the other two legitimate concerns estimates because some provisions of standards on national labor demand regarding the interpretation and use of the Clean Air Act (CAA) were not using an input/output model of the U.S. the employment impacts analysis, DOE explicitly modeled in the version of economy. See 66 FR 7192. The model cannot conclude that the central air NEMS-ERS used for this analysis characterizes the interconnections conditioner and heat pump standards (AEO2000). Some of these provisions between 35 economic sectors using data issued in today's final rule are likely to have been incorporated in subsequent from the Bureau ofLabor Statistics. For AEOs. In addition, EPA is expected to some years after the new standards go 19 Bureau ofEconomic Analysis. Regional promulgate regulations during the into effect, new consumer expenditure Multipliers: Auser Handbook for the Regional analytic period in question that are on air conditioners and heat pumps Input-Output Modeling System (RIMS i). likely to further constrain NOx each year outpaces their annual energy tatU.S. Department of Labor -Bureau of Labor Statistics (BLS), Labor Force Statistics from the emissions and reduce the impact that savings. This activity redirects Current Population Survey. BLS Web site http:// efficiency standards would have on expenditures into the manufacturing stats.bls.gov:8O/cps/home.htm>. 

## EE-RM/STD-98-440-30 

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### 36395

Supplementary Information. All ofthe alternatives considered in DOE's analysis were found to have beneficial environmental impacts compared to the "no action" alternative. Underthe "noaction" orbase case alternative, the minimum efficiency requirements wouldremain at their current levels: a cooling efficiency of 10 SEER for split system air conditioners and heat pumps,
a cooling efficiency of9.7 SEER for single package system air conditioners and heat pumps, a heatingefficiency of 6.8 HSPF for split system heat pumps, and a heating efficiency of6.6 HSPF (ar single package system heat pumps. The primary focus oftheEA is the effect of alternative efficiency stand:Ids or, air

resources resulting from del Teased emissions from fossil-fueleo**ek~tridty** generation. For each ofthe t ial 

### stcniard levels, DOE used the NEMS- E,RS model to calculate total power secte r emis:;i )fiS ofnitrogen oxide, sulfur dioxirie, and carbon. As explained in Secti'Jr. VIIIA. ofthis Supplementary Informatbn, on the basis ofthe EA, DOE determined that the environmental effects associated with the standard leve\<; in today's final rule are not significant.

DOE has corrected an error that DUt: discovered in the NEM8-BRS, the model used by DOE to estimate both peak power and powerplant emission impacts due to appliance standards. As discussed earlier (see Peak Power), DOE conducted a comprehensivereview of the end-use load shapes used by NEM8- BRS, not only for the residential sector and, specifically, the air-conditioning end-use, butfor the commercial, industrial, and transportation sectors as well. Several problems were discovered with the load shapes and, as a result, an alternative set ofsectoral end-use load shapes were assigned to NEMS-BRS. By implementing a new set ofsectoral load shapes, NEM8-BRS estimates greater power plant emission impacts (in the form ofreduced C02 and NOx emissions) from increased central air conditioner and heat pump standards. With regard to NOx emissions, the actual reductions that result from more stringent efficiency standards are likely to be less than the original DOE estimates because some provisions of the Clean Air Act (CAA) were not explicitly modeled in the version of NEM8-ERS used for this analysis (AE02000). Some ofthese provisions have been incorporated in subsequent AEOs. In addition, EPA is expected to promulgate regulations duringthe analytic period in question that are likely to further constrain NOx emissions and reduce the impact that efficiency standards would have on NOx and other environmental emissions. Appendix M ofthe TSD includes an updated set ofpower plant emission impacts. The changes resulting from this NEM8-BRS error correction do not affect DOE's finding ofno significant impact.
6. Employment Impacts

With regard to the impact that amended central air conditioner and heat pump standardshave on national employment, both ARI and Rheem are concerned that high efficiency standards

can lead tojob losses in the airconditioning industry's manufacturing sector. Rheem states that fewer units will be sold due to the higher purchase prices associated with more efficient equipment. Fewer equipment sales will in turnreduce the need for personnel in manufacturing facilities and design groups. (Rheem, No. 248 at p. 3). ARI states that DOE's decision to issue 13 SEER standards in its January 22 final rule was in part based onthe fact that unemployment was then at the lowest rate in 30 years. Because the current state ofthe national economy is certainly worse than whenDOE issued its January 22 final rule, ARI claims that 13 SEER standards would have a much

worse impact on the air-conditioning industry than initially forecasted by DOE. In any case, ARI points out that DOE's analysis demonstrates that 12 SEER standards would have approximately 50 percent fewerjob losses compared to 13 SEER standards. ARI asserts that this difference in job losses is significant and demonstrates that the proposed 12 SEER standards are
a much better choice. (ARI, No, 259 at pp. 11-12, 31-32).

OOE has a much different perspective

onDOE's employment impact analysis. OOE states that it is purely speculative toclaim thatthere is a distinguishable difference between the impacts that 12 SEER and 13 SEER standards have on the national economy. The accuracy of the macroeconomic model used by DOE to estimate employment impacts does not allow for such a distinction. (OOE, No. 275 at pp. 3-4).

As stated m the January 22 final rule, DOE estimated the impacts ofthe new standards on national labor demand using an input/outputmodel ofthe U.S. economy. See 66 FR 7192. Themodel characterizes the interconnections between 35 economic sectors using data from the Bureau ofLabor Statistics. For

some years after the new standards go into effect, new consumer expenditure

on air conditioners and heat pumps each year outpaces their annual energy savings. This activity redirects expenditures into the manufacturing sector, which is less labor intensivethan other sectors ofthe economy,19 producing a gain ofjobs in the manufacturing sector that is less than the loss ofjobs in other sectors ofthe economy. Also, a loss ofjobs results in the utility sector due to its loss of

revenues. As annual consumer energy savings begin to exceed annual new expenditures on air conditioners, eventually the new standards will produce a net gain in national employment.

The increases or decreases in the net demand for labor in the economy estimated by the input/output model due to airconditioner and heat pumps standards are likely to be very small relative to total national employment The following reasons were given in the January 22 final rule for the conclusion that any modest changes in employment

were in doubt (66 FR 7192):

• Unemployment is now at the lowest rate in 30 years. 

### Ifunemployment remains very lowduring the period when the standards are put into effect, it is unlikely that the standards alone could result in any change in national employment levels;

• Neither the BLS data nor the inputoutput model used by DOE include the quality or wage level ofthe jobs. The losses or gains from any potential employment change may be offset ifjob quality and pay also change; and

• The net benefits or losses from potential employment changes are a result ofthe estimated net present value ofbenefits or losses likely to result from air conditioner and heat pump standards. Itmay not be appropriate to identify and consider separately any employment impacts beyond the calculation ofnet present value.

Although, as noted by ARI, unemployment is no longer as low as it

was at the time the January 22 final rule

was issued, the annual unemployment rate in 2001, (4.8 percent) is only slightly higherthan the annual rates for 1998, 1999, and 2000 and still less than the annual rates for all other years in the 1990'S,20 Thus, after discounting the first factor cited above, and considering the othertwo legitimate concerns regarding the interpretation and use of the employment impacts analysis, DOE cannot conclude that the central air conditioner and heat pump standards issued in today's final rule are likely to

19 Bureau ofEconomic Analysis. Regional Multipliers: A user Handbook for the Regional Input-Output Modeling System (RIMS 11),

20 U.S. Department ofLabor-Bureau ofLabor Statistics (BLS), Labor Force Statistics from the Current Population Survey, BLS Web site http:// stats.bls.ga,·:BO/cps/hame.htm>

.

## EE-RM/STD-98-440 -30' 36396 Federal Register/Vol. 67, No. 100/Thursday, May 23, 2002/Rules and Regulations

result in appreciable job losses to the conditioners and heat pumps and will some regions of the country that could nation. take the above comments into benefit from higher efficiency for unique consideration when determining the climate or electrical supply reasons. In 7. Space-Constrained Products appropriate testing requirements for these instances, government agencies

a. Through-the-Wall Products SDHV systems. DOE has started the and utilities should provide incentives

All parties commenting on DOE's research needed to propose amended to encourage the use of higher efficiency proposed standards for through-the-wall standards for SDHV systems and it equipment. (Carrier, No. 280 at p. 3). products supported the proposed intends to initiate a rulemaking shortly Mercatus Center states that DOE does standards-10.9 SEER and 7.1 HSPF for for this product class, not evaluate non-regulatory programs split system air conditioners and heat 8. Basis for HSPF Level adequately because it assumes thei effects rather than estimating them pumps and 10.6 SEER and 7.0 HSPF for ARI stated in its comments that ifa 12 based on any credible data or evidence. single package air conditioners and heat SEER standard is adopted for central air (Mercatus Center, No. 242 at p. 13). pumps. (Austin Energy, No. 243 at p. 3; conditioning heat pumps, the HSPF DOE disagrees with this comment. In OOE, No. 275 at p. 4; Lennox, No. 272 should be no higher than 7.3. ARI determining the base case for the at p. 3; ASE, No. 282 at p. 4; ACEEE, No. believes th. HSPF should be based on analysis ofthe highest efficiency 284 at pp. 13-14). an analysis of the SEER-HSPF standards that are technologically

Thus, DOE is adopting as minimum relationships across equipment of feasible and economically justified (i.e., efficiency standards for the through-the- trying :apacity ratings. It faults DOE's the energy consumption likely to occur wall products the standards proposed in a ialysis 'or relying on an analysis of in the absence ofamended standards), the July 25 SNOPR. o.dy 3-to: equipment to determine the DOE gave adequate consideration to all
b. Small Duct, High Velocity Systems H ;PF. (,UI,No. 259 at p. 4). non-regulatory market forces likely to 4s DOE explained in the preamble to occur in the absence of amended DOE received information in the th. ;anus r, 22 final rule, DOE standards. Additionally, the Regulatory rulemaking that indicated that the established the SEER-HSPF pairings in Impact Analysis estimated the national special characteristics of small duct, order to maintain the offset between the energy savings and net present value high velocity (SDHV) air conditioner mirimum S. 'ER and the minimum that would result from non-regulatory and heat pump systems make it unlikely HSPF .n the :urrent standards. Because approaches including: (1)Consumer such systems could meet the 12 SEER/ heating energy is a large fraction of total product labeling, (2) public education, 7.4 HSPF standard established for heat pump energy consumption, DOE (3)prescriptive standards, (4) consumer conventional products. Spacepak, stated it would not relax the HSPF level tax credits, (5) manufacturer tax credits, Unico, and ARI all support the creation in the absence of sound evidence (6) consumer rebates, (7)low income of a separate product class for SDHV regarding the burdens that would be subsidies, (8) voluntary efficiency systems and the development of mitigated (66 FR 7184). DOE continues targets, and (9) mass government technologically feasible and to think an HSPF of 7.4 is the purchases. The analysis found that none economically justified standards for this appropriate level for 12 SEER, and today ofthem would save an equivalent product. Although all three comments adopts that level. DOE's decision is amount of energy as energy
are in agreement with regard to the supported by data discussed in the TSD conservation standards. establishment ofa new product class for (Section 4.6.2.1) which shows that most SDHV systems, Unico and ARI are in models of equipment below 3-tons meet 10 Energy Policy disagreement over how these systems or exceed an HSPF of 7.4, and almost a On the issue of energy policy, several should be tested. While ARI third of models available below 20,000 comments claimed that DOE's action of recommends that no special BTU/hrmeet or exceed an HSPF of7.4. withdrawing the 13 SEER standards consideration be given for SDHV issued in the January 22 final rule is not systems and, therefore, no changes be 9 Non-Regulatory Approaches consistent with the current made to the test procedures for central ARI, Carrier, and Mercatus Center Administration's own National Energy air conditioners and heat pumps, Unico contended that DOE did not adequately Policy. ASAP, ASE, CEC, and NRDC all
proposes three options for amending the evaluate the national impacts of non- note that the Administration calls for
test procedure to rate SDHV systems. regulatory programs for improving the appliance standards as way to moderate The three options include: (1) A coil- efficiency ofcentral air conditioners and growth in electricity demand and limit only test with a higher allowable coil heat pumps. ARI claimed that by consumer energy bills. (ASAP, No. 244
pressure drop and use ofa default fan combining several non-regulatory at p. 1; ASE, No. 282 at p. 2; CEC, No.
power; (2) coil and blower tested with alternatives, such as consumer tax 263 at p. 2; NRDC, No. 250 at p. 28).

a 1.2 inch minimum external static credits, consumer rebates and low- NRDC also states that the relaxation of
pressure; and (3) coil-only testing with income subsidies, the amount ofenergy the 13 SEER standard is inconsistent existing coil pressure drop allowance saved could increase to 3.5 quads while with the obligations of the United States and default fan power without mention the net present value would remain under the United Nations Framework ofthe blower. (Spacepak, No. 267 at p. relatively unchanged. (ARI, No. 259 at Convention on Climate Change 1; Unico, No. 251 at pp. 3-4; ARI, No. pp. 15-16). Carrier points out that DOE (UNFCCC), to which our country 259 at p. 35). overlooked the energy saving benefits became a Party with the advice and

While DOE agrees with public due tothe proper installation and consent ofthe Senate in 1992. (NRDC,
comments stating that these systems maintenance of air-conditioning No. 250 at pp. 29-30). should not be subject to the standards equipment. Carrier claims that the total DOE disagrees that its action to
set for conventional products, DOE does energy savings from these actions far finalize 12 SEER standards for central
not currently have an analytical basis exceed those limited to increasing the air conditioners and heat pumps is for setting a new standard for SDHV SEER ofthe equipment. In stating the inconsistent with either the systems. DOE is currently in the process proposed 12 SEER standards represent Administration's National Energy Policy of amending the test procedure for an appropriate level for the entire or with the United States' obligations rating the performance ofcentral air nation, Carrier recognizes that there are under the UNFCCC. The 12 SEER 

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result in appreciablejob losses to the nation.
7. Space-Constrained Products

a. Through-the-Wall Products

All parties commenting on DOE's proposed standards for through-the-wall products supported the proposed standards-l0.9 SEER and 7.1 HSPF for split system air conditioners and heat pumps and 10.6 SEER and 7.0 HSPF for single package air conditioners and heat pumps. (Austin Energy, No. 243 at p. 3; ODE, No. 275 at p. 4; Lennox, No. 272 at p. 3; ASE, No. 282 at p. 4; ACEEE, No. 284 at pp. 13-14).

Thus, DOE is adopting as minimum efficiency standards for the through-thewall products the standards proposed in theJuly 25 SNOPR.
b. Small Duct, High Velocity Systems

DOE received information in the rulemaking that indicated that the special characteristics ofsmall duct, high velocity (SDHV) airconditioner and heat pump systems make it unlikely such systems could meet the 12 SEER/ 7.4 HSPF standard established for conventional products. Spacepak, Unico, and ARI all supportthe creation ofa separate product class for SDHV systems and the development of technologically feasible and economicallyjustified standards for this product. Although all three comments

are in agreement with regard to the establishment ofa new product class for SDHV systems, Unico and ARl are in disagreement over howthese systems should be tested. While ARI recommends that no special considerationbe given for SDHV systems and, therefore, no changes be made to the test procedures for central air conditioners and heat pumps, Unico proposes three options for amendingthe test procedure to rate SDHV systems. The three options include: (1) A coilonly testwith a higher allowable coil pressure drop and use ofa default fan power; (2) coil andblowertestedwith

a 1.2 inch minimum external static pressure; and (3) coil-only testing with existing coil pressure drop allowance and default fan power without mention ofthe blower. (Spacepak, No. 267 at p. 1; Unico, No. 251 at pp. 3-4;ARl, No. 259 at p. 35).

While DOE agrees with public comments stating thatthese systems should notbe subjectto the standards set for conventional products, DOE does not currently have an analytical basis for setting a new standard for SDHV systems. DOE is currently in the process ofamendingthe testprocedure for ratingthe performance ofcentral air conditioners and heat pumps and will take the above comments into consideration when determiningthe appropriate testing requirements for SDHV systems. DOE has started the research needed to propose amended standards for SDHV systems and it intendsto initiate a rulemaking shortly for this product class.
8. Basis for HSPFLevel

ARl stated in its comments that ifa 12 SEER standard is adopted for central air conditioning heat pumps, the HSPF shouldbe no higherthan 7.3. ARI believes 

### lb." HSPF shouldbe based on
an analysis ofthe SEER-HSPF rp1ationships across equipment of
\i ll}'ing**~apacity** ratings. It faults DOE's

a lalysis cor relying on an analysis of

o.**ll~'** 3·to: \ equipment to determine the H ;PF. VuU, No. 259 at p. 4).**~** s DOE explained in the preamble to th, ' ;anuerJ 22 final rule, DOE**establish~'d** the SEER-HSPF pairings in order to IT.aintain the offset between the mirimum 5. 'ER andthe minimum HSPF .in thP. ;urrent standards. Because**heatin~** enerlSY is a large fraction oftotal heat pu.'np energy consumption, DOE stated it would notrelax the HSPF level in the absence ofsound evidence regarding the burdens that wouldbe mitigated (66 FR 7184). DOE continues tothink an HSPF of7.4 is the appropriate level for 12 SEER, and today adopts that level. DOE's decision is supportedby data discussed in the TSD (Section 4.6.2.1) which showsthat most models ofequipmentbelow 3-tons meet

orexceed an HSPFof7.4, and almost a third ofmodels available below 20,000 BTU/hrmeet or exceed an HSPF of7.4.
9. Non-Regulatory Approaches

ARI, Carrier, and Mercatus Center contended that DOE did not adequately evaluate the national impacts ofnonregulatory programs for improving the efficiency ofcentral air conditioners and heat pumps. ARl claimed that by combining several non-regulatory alternatives, such as consumertax credits, consumerrebates and lowincome subsidies, the amountofenergy saved could increase to 3.5 quads while the net present value would remain relatively unchanged. (ARl, No. 259 at pp. 15-16). Carrier points out that DOE overlooked the energy savingbenefits due to the proper installation and maintenance ofair-conditioning equipment. Carrier claims that the total energy savings from these actions far exceed those limited to increasing the SEER ofthe equipment. In stating the proposed 12 SEER standards represent
an appropriate level for the entire nation, Carrier recognizes that there are some regions ofthe country that could benefit from higher efficiency for unique climate or electrical supply reasons. In these instances, government agencies and utilities should provide incentives to encourage the use ofhigher efficiency equipment. (Carrier, No. 280 at p. 3). Mercatus Center states that DOE does not evaluate non-regulatory programs adequately because it assumes their effects ratherthan estimating them based on any credible data or evidence. (Mercatus Center, No. 242 at p. 13).

DOE disagrees with this comment. In determining the base case for the analysis ofthe highest efficiency standards that are technologically feasible and economicallyjustified (Le., the energy consumption likely to occur in the absence ofamended standards), DOE gave adequate consideration to all non-regulatory market forces likely to
occur in the absence ofamended standards. Additionally, the Regulatory Impact Analysis estimated the national energy savings and net present value that would result from non-regulatory approaches including: (1) Consumer product labeling, (2) public education, (3) prescriptive standards, (4) consumer tax credits, (5) manufacturer tax credits, (6) consumerrebates, (7) low income subsidies, (8) voluntary efficiency targets, and (9) mass government purchases. The analysis found that none ofthem would save an equivalent amount ofenergy as energy conservation standards.
10. Energy Policy

On the issue ofenergy policy, several comments claimed that DOE's action of withdrawingthe 13 SEER standards issued in the Januarv 22 final rule is not consistent with the current Administration's own National Energy Policy. ASAP, ASE, CEC, and NRDC all note that the Administration calls for appliance standards as way to moderate growth in electricity demand and limit

consumer energy bills. (ASAP, No. 244 at p. 1; ASE, No. 282 at p. 2; CEC, No. 263 at p. 2; NRDC, No. 250 at p. 28). NRDC also states that the relaxation of the 13 SEER standard is inconsistent with the obligations ofthe United States underthe United Nations Framework Convention on Climate Change (UNFCCC), to which ourcountry became a Party with the advice and consent ofthe Senate in 1992. (NRDC, No. 250 at pp. 29-30).

DOE disagrees that its action to finalize 12 SEER standards for central air conditioners and heat pumps is inconsistent with eitherthe Administration's National Energy Policy

orwiththe United States' obligations underthe UNFCCC. The 12 SEER

## EE-RM/STD-98-440 - 3 Federal Register/Vol. 67, No. 100/Thursday, May 23, 2002/Rules and Regulations 36397

standards being finalized today VII. Analytical Results and Conclusions to the TSD. Briefly, DOE examined five significantly increase the minimum Aw of A lR s standard levels. Table 3presents the efficiency requirements for central air of nalytctrial standards levels analyzed and the conditioners and heat pumps. Thus, the 1.General corresponding efficiency level for each policy to amend the standards is class ofproduct. Trial Standard Level 5 consistent with theAdministration's Although DOEreassessed thebenefits isthe Max Tech Level for each class of call to use appliance standards as a and burdens ofthe trial standard levels product. Trial Standard Level 4 was the method to moderate growth in inarriving at the determinations in one DOE adopted forthe standards set electricity demand and limit consumer today's rule, the underlying analyses are forth inthe January 22 final rule. Trial energy bills, unchanged from those presented inthe Standard Level 2is the one DOE today January 22 final rule except for determines tobe the maximum additional analysis ofthrough-the-wall efficiency that is technologically product classes included as Appendix L feasible and economically justified.

TABLE 3.-TRIAL STANDARDS LEVELS FOR CENTRAL AIR CONDITIONERS AND HEAT PUMPS (SEER)

Trial standard

levelSplit air condi- Packaged air Split heat Packaged heat Trinal standard

level tioners conditioners pumps pumps

1

. ............................................... 11 11 11 11 2

....................................................... 12 12 12 12 3

........................................ ............................................................ 12 12 13 13 4

..... .................................. ................................... 13 13 13 13 

### 5

................................................................................. .. 18 18 18

For each trial standard examined, ofManagement and BLdget's 'OMB) with actual performance data and several different scenarios were Guidelinesto StandardizeMe isuresof engineering guidelines. analyzed consisting ofvariations on: (1) CostsandBenefits andtheFo.natof The analysis concluded that utilizing Electricity price and housing AccountingStatements. commonly applied technologies and projections; (2) equipment efficiency 2 Throhth Wall Prod ct designs, the most constrained throughdistributions; (3)manufacturer cost the-wall split-system analysis could estimates; and (4)societal discount rate. In response to comments on the increase its SEERrating from 10.0 SEER Electricity price and housing projections October 5, 2000 NOPR,DOE conducted to as high as 11.4 SEER, and the

were based on three different forecasts additional analysis on the cost and packaged system analysis could increase fromthe Energy Information Agency's technical issues related to through-the- its SEER rating from 9.7 SEERto 10.6 2000 Annual Energy Outlook (AEO): (1) wall air conditioner and heat pump SEER. Employing all improvements Reference Case, (2)High Growth Case, products. The analysis is described in would add $106 and $129 to the retail and (3)Low Growth Case. DOE analyzed detail in Appendix L ofthe TSD and is price ofthe equipment, respectively, three efficiency scenarios, each ofwhich summarized here. comparable to the increases expected in assumed a different efficiency DOEperformed a design assessment conventional equipment moving to a 12 distribution after new standards would on two split through-the-wall systems SEER standard. take effect: (1)NAECA scenario, (2) and one packaged through-the-wall To explore the effects that more Roll-up scenario, and (3)Shift scenario. system. All systems are designed stringent standards for through-the-wall See October 5, 2000 NOPRfor an primarily for the replacement market products would have on consumers, explanation ofthe three scenarios (65 and fit thephysical definition of DOE performed a life-cycle cost FR 59596, notes 10 through 12 and through-the-wall equipment proposed analysis. The life-cycle cost analysis for accompanying text). Under the standard in the October 5, 2000 NOPR and July through-the-wall consumers used a levels in today's rule, DOEbelieves that 25 SNOPR. The design assessment subset ofconsumers identified as living the NAECA scenario most closely sought to identify the cost and in multi-family dwellings, which are the represents the likeliest impact of the efficiency impacts of employing predominate application for throughnew standards, as explained in Chapter commonly applied techniques to the-wall products. 8 ofthe TSD. DOE analyzed two improve efficiency including reduction In theJuly 25 SNOPR, DOEproposed, manufacturer cost scenarios: (1)Based ofair leakage and improvement in based on its analysis, a 10.9 SEER/7.1

on reverse engineering estimates, and airflow, utilizing more efficient HSPF standard for through-the-wall (2)based on ARI-provided mean cost compression and fanmotors, and split systems and a 10.6 SEER/7.0 HSPF estimates. Forthe reasons given in the increasing heat exchanger surface area. standard for through-the-wall single preamble to the January 22 final rule (66 Emerging technologies and modulating package system products. After FR 7177-78), DOE expects manufacturer technologies were not considered since considering public comments, all of costs under the amended standards will they are not likely tobe applied in which supported the proposed levels, lie closer to the estimates produced conventional baseline equipment. DOEtoday adopts those levels as final through DOE's reverse engineering The cost estimation for the analysis standards forthrough-the-wall products. analysis, which lie between ARI's was based on amodified version ofthe minimum and ARI's mean cost values. reverse engineering cost models3. Small Duct,High Velocity Systems DOE assumed a societal discount rate of developed as part ofthisrulemaking for Inresponse to comments on theJuly 7percent for calculating net present conventional products. The 25, 2001 SNOPR, DOE has determined value (NPV). However, a 3percent value performance impacts ofemploying that additional analysis on the cost and

was investigated as an alternative various design options were estimated technical issues related to SDHV air scenario in accordance with the Office utilizing a spreadsheet model populated conditioner and heat pump products are 

### EE·RM/STD·98·440

# -:3"'"

Federal R.egister/Vol. 67, No. lOa/Thursday, May 23, 2002/Rules and Regulations 36397

standardsbeing finalized today significantlyincreasethe minimum efficiencyrequirements for central air conditioners andheatpumps. Thus, the policyto amendthe standards is consistentwiththeAdministration's call to use appliance standards as a methodto moderate growth in electricity demand and limit consumer energybills. 

## vn. AnalyticalResults andConclusions
A. 

### Overviewof AnalyticalResults
1. General

AlthoughDOE reassessed thebenefits andburdens ofthe trial standard levels inarriving atthe determinations in today's rule, theunderlying analyses are unchanged from thosepresented inthe January 22 final ruleexceptfor additional analysis ofthrough-the-wall productclasses included as AppendixL to the TSD. Briefly, DOE examined five standard levels. Table 3 presents the trial standards levels analyzed and the corresponding efficiency level for each class ofproduct. Trial StandardLevel 5 is the Max Tech Level for each class of product. Trial Standard Level 4 was the

oneDOE adopted for the standards set forth intheJanuary 22 final rule. Trial StandardLevel 2 is the oneDOE today determines tobethe maximum efficiency that is technologically feasible and economicallyjustified.

TABLE 3.-TRlAL STANDARDS LevELS FOR CENTRAL AIR CONDITIONERS AND HEAT PUMPS (SEER)

Trial standard level 

# ISplit.air condi- Packa(1Eld air Split heat Packaged heat tloners conditioners pumps pumps

# ~**:::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::.·::::·::·I----~-i-t-----~-~-t-----~2-1 +-----~~** 

# ~ :::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::

# :~:::: I

_.___

# ~:_3..1..-____

# ~_~..I...- ____

# ~_!...J....____

# ~!

Foreachtrial standard examined, several different scenarios were analyzed consisting ofvariations on: (1) Electricity price andhousing projections; (2) equipment efficiency distributions; (3) manufacturercost estimates; and (4) societal discountrate. Electricity price andhousingprojections

werebased onthree different forecasts from the Energy InformationAgency's 2000 Annual Energy Outlook (AEO): (1) Reference Case, (2) High Growth Case, and (3) Low Growth Case. DOE analyzed three efficiency scenarios, each ofwhich assumed a different efficiency distribution after new standardswould take effect: (1) NAECA scenario, (2) Roll-up scenario, and (3) Shift scenario. See October 5, 2000 NOPR for an explanation ofthethree scenarios (65 FR 59596, notes 10through 12 and accompanyingtext). Underthe standard levels intoday's rule, DOEbelievesthat theNAECA scenario most closely represents the likeliest impact ofthe

new standards, as explained in Chapter 8 ofthe TSD. DOE analyzed two manufacturercost scenarios: (1) Based

onreverse engineeringestimates, and (2) based onARl-provided mean cost estimates. Forthereasons given inthe preambletotheJanuary 22 final rule (66 FR 7177-78). DOE expectsmanufacturer costs underthe amended standards will lie closertothe estimates produced throughDOE's reverse engineering analysis, which liebetweenARl's minimum andARl's mean costvalues. DOE assumed a societal discountrate of 7 percent for calculating netpresent value (NPV). However, a 3 percentvalue

was investigated as an alternative scenario in accordance withthe Office ofManagement and "Budget's 'OMB) 

### Guidelines to StandardizeMe Jsures of Costs andBenefits andI'he Fo.mat of AccountingStatements.
2. Through-the-Wall PrOd,lctj;

In responseto comments onthe October 5,2000NOPR, DOE conducted additional analysis onthe cost and technical issues relatedto through-thewall airconditioner andheat pump products. The analysis is described in detailinAppendix Lofthe TSD andis summarizedhere.

DOE performed a design assessment
ontwo splitthrough-the-wall systems and onepackagedthrough-the-wall system. All systems are designed primarily for thereplacementmarket and fit the physical definition of through-the-wall equipment proposed inthe October 5,2000NOPR andJuly 25 SNOPR. The design assessment soughtto identify the cost and efficiency impacts ofemploying commonlyappliedtechniques to improve efficiency includingreduction ofairleakage and improvementin airflow, utilizing more efficient compressionand fan motors, and increasingheat exchanger surface area. Emergingtechnologies andmodulating technologies were notconsidered since they are not likelytobe applied in conventional baseline equipment.

The costestimationfor the analysis

wasbasedona modified version ofthe

reverse engineeringcostmodels developed as part ofthis rulemaking for conventional products. The performance impacts ofemploying various design options were estimated utilizing a spreadsheet model populated with actual performance data and engineering guidelines.

The analysis concludedthat utilizing commonly applied technologies and designs, the most constrained throughthe-wall split-system analysis could increase its SEERrating from 10.0 SEER to as high as 11.4 SEER, andthe packaged system analysis could increase its SEERrating from 9.7 SEERto 10.6 SEER. Employing all improvements wouldadd $106 and $129to the retail price ofthe equipment, respectively. comparable to the increases expected in conventional equipment moving to a 12 SEER standard.

To explorethe effects that more stringent standards for through-the-wall products wouldhave on consumers, DOE performed a life-cycle cost analysis. The life-cycle cost analysis for through-the-wall consumers used a subset ofconsumers identified as living in multi-family dwellings, which are the predominate application for throughthe-wall products.

IntheJuly 25 SNOPR, DOE proposed, based onits analysis. a 10.9 SEER/7.1 HSPF standardfor through-the-wall split systems and a 10.6 SEERI7.0 HSPF standard for through-the-wall single package systemproducts. After consideringpublic comments, all of which supportedthe proposed levels, DOE today adopts those levels as final standards for through-the-wall products. 3. Small Duct, High Velocity Systems

Inresponse to comments ontheJuly 25, 2001 SNOPR, DOE has determined that additional analysis onthe cost and technical issues relatedto SDHV air conditioner andheat pump products are

## EE-RM/STD-98-440-30o
36398 Federal Register/Vol. 67, No. 100/Thursday, May 23, 2002/Rules and Regulations

needed to determine appropriate standards covering all product types significant conservation of energy" (42 minimum efficiency standards for this (e.g., 10 SEER/6.8 HSPF for split system U.S.C. 6295(o)(3)(B)). class ofproduct.The analysis plan for air conditioners) will remain applicable In conducting its analysis, DOE establishing the manufacturing cost and to SDHV systems. DOE intends to considers the impacts ofstandards efficiency relationship for SDHV conduct a separate rulemaking for beginning with theMax Tech Level, i.e., systems hasyet to be developed, but SDHV systems to establish appropriate Trial Standard Level 5in this DOE intends to involve the minimum efficiency standards for this rulemaking. DOE then considers less manufacturers that produce these class ofproduct. efficient levelsuntil it reaches the level products (Spacepak and Unico) in the which is both technologically feasible planning process. B. ConclusionsRegardingConventional and economically justified.

To explore the effects that more Productstif stringent standards for SDHV systems To aid the reader in the discussion of have on consumers, DOE intends to EPCA specifies that any new or thebenefits and burdens ofthe trial perform a life-cycle cost analysis. The amended energy conservation standard standard levels, DOE includes a life-cycle cost analysis for SDHV for anytype (or class) ofcovered summary ofthe analysis results for all

consumers will use a subset of product shall be designed to achieve the jfthe levels in Table 4.21 Table 4

consumers identified as probable maximum improvement in energy presents a summary ofquantitative candidates for the application ofSDHV efficiency which the Secretary analysis results for each trial standard products. determines is technologically feas ible level based on the assumptions DOE

Although DOE has concluded that and economically justified (42 U.: .C. considers mostplausible. These include SDHV systems warrant their own 6295(o)(2)(A)). In determining whi ther a manufacturing cost estimates from the product class, ithas yet to determine an standard is economicallyjustified, the reverse engineering, an 18.4-year appropriate minimum efficiency Secretary must determine whether lie equipment lifetime with one compressor standard for them. Therefore, this final benefits ofthe standard exceed its i -placement at 14 years, and electricity rule provides that the NAECA- burdens (42 U.S.C. 6295(o)(2)(B)(i)). The prices based on the AEO2000 Reference prescribed minimum efficiency amended standard must "result in C 'se.

TABLE 4.-SUMMARY OF QUANTITATIVE RESULTS

Trial Std Trial Std Trial Std Trial Std Trial Std 1_J 2 3 4 5

SEER levels for most products

............................................................................................ 11

... 12

......... 12 for 13

......... 18 CAC/ 13 for HP. Primary Energy Saved (quads)

........................................................................................... 1.7

........ 3.0

........ 3.5

........ 4.2

........ 8.8 Generation Capacity Offset (GW)

................................................. 44

. . .......... ...... 4.4

...... 21.9

NPV (Sbillion)

7% D iscount Rate

................................................................................................................ 2 7%Discount Rate

.................... . 2 2 (10)
Industry Impacts (million S)2



### Cumulative Change inIndustry NPV

................................................................................... (30)

....... (159)

..... (171)

..... (303)

..... - Differential impact between Industry Sub-groups 3

............................................................. 75

......... 238

....... 261

....... 429

....... Cumulative Regulatory Burden on Industry

......................................................................... (>509)

.. (>638)

.. (>650)

.. (>782)

.. Minimum net cash flow

................ ............................................. 62

......... 31

......... 18 ......... (3) .........

_ Llfe-Cycle Cost Savings ()4 Split AC

............................................................................... 75

......... 113

....... 113

....... 113

....... (137) Packaged AC

............................................................ ... ...................................... 78

..... 163

....... 163

....... 29

......... (276) Split H P

...................................... ................................................................. 209

....... 365

....... 372

....... 372

....... (41) Packaged HP

....................................................................................................................... 207

....... 421

....... 353

....... 353

....... 166
Equipment Price Increase (S) SplitAC

................................................................... 91

..... 21 3

....... 335

....... 754 Packaged AC

.............................. ....... ............... .... ..... ... ............... ....................................... 425 859 Split HP

.................................................................. 55

......... 144

...... 2

....... .. 1039 Packaged H eat Pum p

.................................................................................... 9.......85
Fraction of all Consumers with Net LCC Losses >2% (%) SplitAC

. .................................. ................................ 2 25

......... 25

......... 39

......... 68 PackagedAC

....................................................................................................................... 9 9

........... 52

......... 73 Split H P

....................... ................ .............................................................................. ........... ........... 6

........... 6

........... 57

21 All cumulative effects that arenot monetary are not discounted. Monetary effectgs are discounted to 1998 dollars. 

### 36398 

## EE-RM/STD-9S-440-?O'f Federal Register/Vol. 67, No. lOO/Thursday, May 23, 2002 I

### Rules and Regulations

neededto determine appropriate minimum.efficiency standards for this class ofproduct. The analysis plan for establishingthe manufacturing cost and efficiencyrelationship for SDHV systems has yet tobedeveloped,but DOE intends to involve the manufacturers that produce these products (Spacepak andUnico) inthe planningprocess.

To expforethe effects that more stringent standards for SDHV systems have on consumers, DOE intendsto 

### perform a life-cycle costanalysis. The life-cycle cost analysis for SDHV

consumerswill use a subset of

consumers identified as probable candidates for the application ofSDHV products.

AlthoughDOE has concludedthat SDHV systems warranttheirown product class, ithasyet to determine an appropriate minimum efficiency standard for them. Therefore. this fmal rule providesthat theNAECAprescribed minimumefficiency standards covering all producttypes (e.g.• 10 SEER/6.8 HSPF for split system airconditioners) will remain applicable to SDHV systems. DOE intendsto conducta separaterulemaking for SDHV systems to establish appropriate minimumefficiency standards for this class ofproduct.
B. Conclusions Regarding Conventional Products



### EPCA specifies that any new or amendedenergy conservation standard for anytype (orclass) ofcovered product shall be designed to achievethe maximum improvement inenergy efficiency whichthe Secretary determines is technologically feaeI.ble and economically justified (42 U.!.C. 6295(0)(2)(A)). In

### determining whl tt.er .:I 

### standard is economicallyjustified.the Secretary mustdetermine whether lie benefits ofthe standard exceed its burdens (42 U.S.C. 6295(0)(2)(B)(i)). The amended standard must "resultin significant conservation ofenergy" (42 U.S.C.6295(0)(3)(B)).

In

### conducting its analysis. DOE considers the impacts ofstandards beginning with the Max Tech Level. i.e.• 

### Trial Standard Level 5 in this rulemaking. DOE then considers less efficient levels until it reaches the level which is bothtechnologically feasible and economicallyjustified.

To aid thereader inthe discussion of thebenefits andburdens ofthe trial standard levels. DOE includes a summary ofthe analysis results for all 

### \.Ifthe levels inTable 4. 21 

### Table 4 presents a summary ofquantitative analysis results for each trial standard level based onthe assumptions DOE considers mostplausible. These include manufacturing cost estimates from the

reverse engineering, an 18.4-year uquipment lifetime with one compressor
I**~placement** 

### at 14 years. and electricity ppices based onthe AE02000 Reference G·se.

TABLE 4.-SUMMARY OF QUANTITATIVE RE:,UL1S

TrialB.Trial Std Trial Std Trial Std Trial Std 1 2 3 4 5

SEER levels for most products

............................................................................................ 11

......... 12

......... 12 for 13

......... 18 CACI 13 for HP. Primary Energy Saved (quads)

........................................................................................... 1.7

........ 3.0

........ 3.5

........ 4.2

........ 8.8 Generation Capacity Offset (GW)

........................................................................................ 4.4

........ 8.7

........ 10.1



### . ..... 12.6

...... 21.9

NPV (Sbllllon)

7% Discount Rate

................................................................................................................ 12

........... 12

..........·11

..........·11

..........·1 (10) Industry Impacts (million S) 2

Cumulative Change in Industry NPV

................................................................................... (30)

....... (159)

..... Differential impact between Industry Sutrgroups 3

............................................................. 75

......... 238



### ....... Cumulative Regulatory Burden on Industry

......................................................................... (>509)

.. (>638)

.. Minimum net cash flow

........................................................................................................ 62

......... 31

......... Llfe-Cycle Co.t Saving. ($) 4
Split AC

................................................................................................................................ 75

......... 113

....... Packaged AC

....................................................................................................................... 78

......... 163



### ....... Split HP

................................................................................................................................ 209



### ....... 365

....... Packaged HP

....................................................................................................................... 207



### ....... 421



### ....... Equipment Price Incr

.... (S)
Split AC

................................................................................................................................ 91



### ......... 213



### ....... Packaged AC

....................................................................................................................... 89

......... 158



### ....... Split HP

................................................................................................................................ 55



### ......... 144



### ....... Packaged Heat Pump

.......................................................................................................... 92



### ......... 149



### .......
Fraction of all Con.umers with Net LCC Lo

.... >2"10 ("10)
Split AC

................................................................................................................................ Packaged AC

....................................................................................................................... SplitHP

................................................................................................................................

21 All cumulative effects that are not monetary are not discounted. Monetary effectgs are discounted to 1998 dollars. (171)

..... 261



### ....... (>650)



### .. 18



### . ........

113

....... 163



### ....... 372

....... 353



### .......

213



### . ...... 158



### . ...... 332



### ....... 435

.

### ...... (303)

..... 429



### . ...... (>782)



### .. (3)

.........

113

....... 29



### ......... 372

..

### ..... 353

.

### ......

335



### ..

### ..... 425



### ....... 332



### . ...... 435



### ....... (137) (276) (41) 166

754 859 1039 985

68 73 57

## EE-RM/STD-98-440- 3o4

Federal Register/Vol. 67, No. 100/Thursday, May 23, 2002/Rules and Regulations 36399

TABLE 4.-SUMMARY OF QUANTITATIVE RESULTS 1-Continued

Trial Std Trial Std TalStd Trial Std Trial Std .1 2 3 4 5

Packaged Heat Pump

.......................................................................................................... ........... 0

.......... 12

......... 12

......... 48

Fraction of Low Income Consumers with Net LCC Losses >2% (%)

Split A C

................................................................................................................................ ........... 34

......... 34

......... 5 0

......... 7 7 Packaged A C

...................................................................................................................... 2

........... 14

......... 14

......... 61

......... 80 Sp

litHP ................................................................................................................................

........... ........... 12

......... 12

......... 75 Packaged H eat Pump

.......................................................................................................... ........... ........... 20

......... 20

......... 66

Parentheses indicate negative (-) values. Unless otherwise noted, Trial Standard Levels 1-3 refer to the NAECA efficiency scenario, and Trial Standard Levels 4 and 5 refer to the Roll-up efficiency scenario.

2Not calculated at Trial Standard Level 5. 3The benefit accruing to the Higher Operating Cost subgroup compared to the Lower Operating Cost subgroup. 4Negative values indicate LCC increases.

In addition to the quantitative results, installing the new baseline products estimat 3s repr:sent lower bounds to the DOE also considers other burdens and into replacement applications, actual c:sts because they do not include benefits that might affect the economic First DOE considered Trial Standard the add tonai price the consumer justification. Level 5, the Max Tech Level for each of would 

## r iy over the price ofa 15 SEER

The potential to improve the four classes ofproducts, representing product, whicih \ ould increase the lifereliability ofthe electricity system is uniform 18 SEER requirements. The cycle coFt -onsi d rably. considered by some to be the major manufacturing costDOE assumes for DOE contludes that at Trial Standard benefit that DOE had not quantified Trial Standard Level 5 is equal to the Level 5, the benefi s ofenergy and explicitly. In areas where the occurrence cost of 15 SEER equipment, rather than energy cost saving
,and emission ofblackouts (and brownouts) can be the cost of 18 SEER equipment, since reductions would Le outweighed by the reduced through expansion of system manufacturer cost data were not negative economic impacts to the capacity, the economic value of avoided available for the 18 SEER efficiency nation, to the vast majority of blackouts associated with reductions in levels. Because ofthat assumption, DOE consumers and to the manufacturers. peak load cannot exceed the value of the expects that its estimate of the cost and Consequently, DOE has determined that avoided capacity expansion. That value price ofthe product at Trial Standard Trial Standard Level 5, the Max Tech is already captured in DOE's analysis as Level 5 are understated. Trial Standard Level, is not economically justified. savings in consumer utility bills. Level 5 would likely save 8.8 quads of Next, DOE considered Trial Standard However, in areas that are unable to energy between 2006 and 2030 which Level 4, the level that the previous maintain adequate capacity reserves, the DOE considers significant. The energy Administration determined to be value of avoided blackouts associated savings through 2020 would result in economically justified in the January 22 with reductions in peak demand often the avoidance ofapproximately 22 final rule. This level specifies 13 SEER far exceed the normal costs of capacity gigawatts (GW) ofinstalled generation equipment for all product classes. In expansion. 2 2 DOE has reexamined capacity in 2020. For comparison, the considering Trial Standard Level 4, DOE claims that the energy efficiency generating capacity is equivalent to assumed the Roll-up efficiency scenario standards under consideration could roughly 55 large, 400 megawatt, power and reverse engineering cost estimates improve significantly electric system plants, and reduced emissions would to be the most probable. Under the Rollreliability over the long term (see range up to 73 Mt of carbon equivalent up scenario, equipment that in the base discussion at Section VI.G.2). and up to 279 kt of NOx. 23 Furthermore, case was forecast to be less efficient

DOE also recognizes that the adopted for the nation as a whole, Trial Standard than the trial standard level is assumed standards could result in additional Level 5 is estimated to result in a net to move up to the standard level, and unquantifiable benefits and burdens. cost in excess of $10 billion. DOE did equipment forecasted to be at or above These include the avoidance of not calculate manufacturer impacts at the trial standard level is assumed not environmental impacts associated with this trial standard level, determining to increase in efficiency. (See Section the siting of some powerplants, a based on preliminary evaluation that 8.4.8 of the TSD for the reasons DOE possible increase in health problems they would be severe and unacceptable. considers the Roll-up efficiency caused by consumers foregoing air At Trial Standard Level 5, the average scenario most probable above Trial conditioner purchases, a possible consumer would experience an increase Standard Level 3 and the NAECA reduction in the ability ofthe product in life-cycle cost. Compared to today's efficiency scenario most probable at to dehumidify, a possible lessening of standards, purchasers of split central efficiency scenard Levels 1, 2, and 3; see competition, and possible difficulty in air-conditioners, the predominate class Section 7.2.2.5 of the TSD for the of central air conditioner with 65

--- of central air conditioner with 65 current efficiency distribution for each " For instance, if capacity-related blackouts cost percent of the sales of central air current efficiency distribution for each

a region $1 billion, society would be willing to pay conditioners and heat pumps, would product class and for the assumed

up to $1 billion to prevent them. If those blackouts most likely lose excess of$137 over efficiency distributions after new

can be prevented through either a capacity mot l y le in e s of $ 7 expansion or a reduction in peak demand, and the the life of the appliance. Purchasers of standards.)

new capacity would cost S100 million, the value of split heat pumps, the predominant class Primary energy savings between 2006 the reduction in peak demand can beno more than ofheat pump, would most likely lose in and 2030 is estimated tobe 4.2 quads, $100 million. Ifthe region is short on capacity and excess of $41 These life cost which DOE considers significant. The
cannot add new capacity quickly, however, the excess of $41. These life-cycle cost estimated energy savings through 2020

same reduction in peak demand then can equal the value of the avoided blackout ($1 billion) since 23 Generating capacity, carbon, and NOx would result in avoidance of
there is no feasible alternative. reductions are based on Roll-up efficiency scenario. approximately 12.6 GW in installed 

### EE- RM/STD-98-440-

# 304

Federal Register/Vol. 67, No. lOO/Thursday, May 23, 2002/Rules and Regulations 36399

TABLE 4.-SUMMARY OF QUANTITATIVE RESULTS'-Continued

Trial Std Trial Std Trial Std Trial Std Trial Std . 1 234 5 Packaged Heat Pump

.......................................................................................................... 0

........... 0

........... 12

......... 12

......... 48

Fraction of Low Income Consumers with Net LCC Losses >2% (%)
Split AC

................................................................................................................................ 5........... 34......... 34......... 50......... 77 Packaged AC

....................................................................................................................... 2

........... 14

......... 14

......... 61

......... 80 Split HP

................................................................................................................................ 0

........... 0

........... 12

......... 12

......... 75 Packaged Heat Pump

.......................................................................................................... 0.........

.. 0........... 20......... 20......... 66

1 Parentheses indicate negative (-) values. Unless otherwise noted, Trial Standard Levels 1-3 refer to the NAECA efficiency scenario. and Trial Standard Levels 4 and 5 refer to the Roll-up efficiency scenario.

2 Not calculated at Trial Standard Level 5.
3The benefit accruin9 to the Higher Operating Cost subgroup compared to the Lower Operating Cost subgroup.

4 Negative values indicate Lee increases.

In addition to the quantitative results, DOE also considers other burdens and benefits that might affect the economic justification.

The potential to improve the reliability ofthe electricity system is considered by some to be the major benefit that DOE had notquantified explicitly. In areas where the occurrence ofblackouts (and brownouts) canbe reduced through expansion ofsystem capacity, the economic value ofavoided blackouts associated with reductions in peak load cannot exceed the value ofthe avoided capacity expansion. That value is already captured in DOE's analysis as savings in consumer utility bills. However, in areas that are unable to maintain adequate capacity reserves, the value ofavoided blackouts associated withreductions inpeak demand often far exceed the normal costs ofcapacity expansion. 22 DOE has reexamined claims that the energy efficiency standards under consideration could improve significantly electric system reliability over the long term (see discussion at Section 

### VI.G.2).

DOE also recognizes that the adopted stf'ndards couldresult in additional unquantifiable benefits and burdens. These includethe avoidance of environmental impacts associated with the siting ofsome powerplants, a possible increase in health problems caused by consumers foregoing air conditioner purchases, a possible reduction inthe ability ofthe product to dehumidify, a possible lessening of competition, andpossible difficulty in

22 For instance. ifcapacity-related blackouts cost
a region $1 billion. society would be willing to pay up to $1 billion to prevent them. Ifthoseblackouts

can be prevented through either a capacity expansion or a reduction in peak demand. and the

new capacity would cost $100 million. the value of the reduction in peak demand can be no morethan $100 million. Ifthe region is short on capacity and cannot add new capacity quickly. however. the

same reduction in peak demand then can equal the value ofthe avoided blackout ($1 hillion) since there is no feasible alternative. installing the new baseline products into replacement applications.

First DOE considered Trial Standard Level 5, the Max Tech Level for each of four classes ofproducts, representing uniform IB SEER requirements. The manufacturing costDOE assumes for Trial Standard Level 5 is equal to the cost of 15 SEERequipment, rather than the cost ofIB SEER equipment, since manufacturer cost data were not available for the IB SEER efficiency levels. Because ofthat assumption, DOE expects that its estimate ofthe cost and price ofthe product at Trial Standard Level 5 are understated. Trial Standard Level 5 would likely save B.B quads of energy between 2006 and 2030 which DOE considers significant. The energy savings through 2020 would result in the avoidance ofapproximately 22 gigawatts (GW) ofinstalled generation capacity in 2020. Forcomparison, the generating capacity is equivalent to roughly 55 large, 400 megawatt, power plants. and reduced emissions would range up to 73 Mt ofcarbon equivalent and up to 279 kt ofNOx.23 Furthermore. for the nation as a whole. Trial Standard Level 5 is estimated toresult in a net cost in excess of$10billion. DOE did not calculate manufacturer impacts at this trial standard level, determining based on preliminary evaluation that they wouldbe severe and unacceptable.

At Trial Standard Level 5. the average consumer wouldexperience an increase inlife-cycle cost. Comparedto today's standards, purchasers ofsplit central air-conditioners, the predominate class ofcentral air conditioner with 65 percent ofthe sales ofcentral air conditioners and heat pumps, would most likely lose in excess of$137 over the life ofthe appliance. Purchasers of splitheat pumps, the predominant class ofheat pump, would most likely lose in

excess of$41. These life-cycle cost

23 Generating capacity. carbon, and NOx reductions are based on Roll-up efficiency scenario. estima13s repre'sent lowerboundsto the actual (**)S~~** r.ecause they do not include the add I"onal {-rice the consumer would Fly OVfT 'he price ofa 15 SEER product, whicl' \ 'ould increase the lifecycle COft**,~onsid ~rably.** 

DOE con**~ludtls** that at Trial Standard Level 5.**t~e** bendis ofenergy and energy cost raving'

.and emission reductions would le outweighed by the negative economic Impacts to the nation. to the vast majority of

consumers and to the manufacturers. Consequently, DOE has determined that Trial Standard Level 5, the Max Tech Level. is not economicallyjustified.

Next, DOE considered Trial Standard Level 4, the level that the previous Administration determined to be economicallyjustified in the January 22 final rule. This level specifies 13 SEER equipment for all product classes. In considering Trial Standard Level 4, DOE assumed the Roll-up efficiency scenario and reverse engineering cost estimates to be the most probable. Under the Rollup scenario, equipment that in the base

case was forecast to be less efficient than the trial standard level is assumed to move upto the standard level, and equipment forecasted to be at or above the trial standard level is assumed not to increase in efficiency. (See Section B.4.B ofthe TSD for the reasons DOE considers the Roll-up efficiency scenario most probable above Trial StandardLevel 3 and the NAECA efficiency scenario most probable at Trial Standard Levels I, 2. and 3; see Section 7.2.2.5 ofthe TSD for the current efficiency distribution for each product class and for the assumed efficiency distributions after new standards.)

Primary energy savings between 2006 and 2030 is estimated tobe 4.2 quads. which DOE considers significant. The estimated energy savings through 2020 wouldresult in avoidance of approximately 12.6 GW in installed

# EE-RM/STD-98-440-30t. 36400 Federal Register/Vol. 67, No. 100/Thursday, May 23, 2002/Rules and Regulations

generating capacity in 2020. For present value of$29 over the 18.4 year potentially larger equipment, and the comparison, the generating capacity is life ofthe product. cost to manufacturers taking into equivalent to avoiding theneed for 32 The average purchaser ofa split account the cumulative regulatory large 400 megawatt power plants, and system heat pump, which represents 22 burden. Trial Standard Level 4 reduced emissions wouldrange up to 33 percent ofall shipments, would see the introduces the serious concern that Mt ofcarbon equivalent and up to 111 average installed price of$3668 rise to prospective owners ofair conditioning kt ofNOx.24 Trial Standard Level 4 $4000, an increase of$332. Lower heat pump systems would instead would lower peak electricity demand utilitybills from the energy savings purchase less costly air conditioner compared to thebase case. That would would repay this increase in 6.4 years resistance heater combinations because 

### allow utility service areas tobuild less and produce a total saving with anet ofthe substantial purchase price

new capacity, with attendant present value of$372 overthe 18.4 year differential between heat pumps and air environmental benefits. life ofthe product. The average conditioners. As discussed in the

A measure ofan efficiency standard's purchaser ofa single package heat January 22 notice offinal rulemaking economic benefit to the nation isthe pump, which represents 4percent ofall (66 FR 7196), the energy savings from increase innet present value, which is shipments, would see the average the more efficient heat pumps would be the difference in total cost, bothinitial installed price of $3599 rise to $4034, an eliminated ifonly a small fraction of the difference 

### in total cost, both iitia increase of $435. Lower utility bills heat pump owners (4 percent) switched 

### cost and discounted operating cost, from the energy savings would repay to resistance heating. T.ose households between the base case (without a new this increase in 8.4 years and produce residing in manufactur!d hou.ing, standard) and the case with a new a total saving with a net present value which is often shipped from th e 

### factory standard. For Trial Standard Leve 4, the of$353 over the 18.4 year life ofthe without an air conditiol ing svs em but increase in national net present value isproduct. While theaverage consumer with a resistance furnac
, might be estimated to be $1billion.25 purchasing a 13 SEERair conditioner or inclined to simply add a lower cost air

Since DOE expects the Roll-up heat pump would experience a net conditioner and retain tl eresistance efficiency scenario to result from saving over the lifetime ofthe product, furnace instead ofreplacing the standards adopted at Trial Standard a substantial fraction ofall households resistance furnace with ahtat pur ip. In Level 4, theburdens ofTrial Standard would experience net costs exceeding 2 short, the large financial buidens ( f Level 4 on manufacturers are likely to percent ofthe total life-cycle cost of Trial Standard Level 4 are not be severe. Not only does DOE expect the today's baseline units. Thirty-nine outweighed by the expected financial average loss in industry NPV to be percent ofthe households with split benefits. Otherpotential burdens around 20 percent, but impacts on most system airconditioners, 52 percent with include possible health effects caused manufacturers would reach almost 30 single package air conditioners, 6 indirectly by foregone air conditioning percent. Their long term drop in return percent with split system heat pumps purchases and possible lessening of

on investment and short term drop in and 12 percent with single package heat competition, as determined by DOJ in cash flow suggestthat standards pumps would experience a net cost. The its letter ofApril 5, 2001 to DOE adopted atTrial Standard Level 4 could percentage oflow-income consumers regarding the January 2001 final rule. accelerate the consolidation trend, who would experience net costs Consequently, DOE determines that possibly resulting in fewer choices for exceeding 2percent ofthe total life- Trial Standard Level 4 is not

consumers and in a slowing ofthe pace cycle cost oftoday's baseline units is economically justified. ofinnovation well intothe future. greater than that ofthe average Next, DOE considered Trial Standard Furthermore, the cumulative impact on household; 50percent oflow-income Level 3.This level specifies 12 SEER the industry ofall new Federal and households with split system air equipment for air conditioners and 13 State regulations is estimated to exceed conditioners, 61 percent with single SEER equipment for heat pumps. In $782 million. package air conditioners, 12 percent considering Trial Standard Level 3,DOE

For Trial Standard level 4, the average with split system heat pumps and 20 assumed the NAECA efficiency scenario purchaser ofa split system air percent with single package heat and reverse engineering cost estimates conditioner, the predominant class with pumps. Also, the possibility that many to be the most probable. (See Section 65 percent ofall shipments, would see consumers would incur substantial 8.4.8 oftheTSD for the reasons DOE the installed price of$2236 rise to installation costs isgreat because 13 considers the Roll-up efficiency $2571, an increase of$335. Lower SEER equipment often will not fit in the scenario mostprobable atTrial Standard utility bills from the energy savings same space as current 10 SEER Levels 4 and 5and theNAECA would repay this increase in 11.3 years equipment. In light ofthe higher efficiency scenario most probable at and produce a total saving with a net purchase cost increase experienced by Trial Standard Levels 1, 2 and 3.) sand

produceat otl savig withe 14 year all consumers and the percentage of For Trial Standard Level 3,primary resent value of$113 overthe 18.4 yearhouseholds that experience life-cycle energy savings between 2006 and 2030 lifpurchaser of th product. Thsingle avrckage cost increases, in particular low-income are estimated tobe 3.5 quads, which 

### purchasoer ofa singlepackage air ahouseholds, which experience life-cycle DOE considers significant. The energy conditioner,which represents 10 h

. hi conditioner which rpsents 1 cost increases, consumer burdens are savings through 2020 would result in percent ofall shipments, would see the apveraeinst alle priens of $2607risee to particularly acute under Trial Standard avoidance ofapproximately 10.1 GW in average installed price of$2607 rise to Level 4. installed generating capacity in 2020. 

### $3032, an increase of$425. Lower DOE concludes that at Trial Standard For comparison, the generating capacity utility bills from the energy savings Level 4, thebenefits ofenergy savings, is equivalent to avoiding the need for 25 would repay this increase in 14.5 years generating capacity and emission large 400 megawatt power plants, and and produce a total saving with a net avoidance, and netbenefit to the reduced emissions would range upto 28 nation's consumers wouldbe Mt ofcarbon equivalent and up to 97 kt
2"Generating capacity, carbon. and NOx outweighed by the maldistribution of 

### ofNOX 26Trial Standard Level 3 would reductions are based onRoll-up efficiency scenario. consumer benefits, the Lpotenti 25 Under the NAECA efficiency scenario, the consume r 

### teneaits, the potentia increase in national net present value would be 

### increase in installation costs for some 2

, Generating capacity, carbon, and NOx

zero. 

### consumers related to installing reductions arebased on NAECA efficiency scenario. 

### 36400 

## EE·RM/STD·98-44()...30,," Federal 

### Register/Vol. 67. No. lOO/Thursday. May 23. 2002 I

### Rules and Regulations

generating capacity in 2020. For comparison. the generatingcapacity is equivalentto avoiding theneedfor 32 large 400megawatt powerplants. and reduced emissionswouldrange up to 33 Mt ofcarbonequivalentandupto 111 kt ofNOx. Z4 Trial StandardLevel 4 would lower peak electricity demand comparedto thebase case. That would allowutility service areas tobuildless

new capacity. with attendant environmentalbenefits.

A measure ofan efficiency standard's economicbenefitto the nation isthe increase in net presentvalue. whichis the difference in total cost. bothinitial cost and discounted operating cost, between thebase case (withouta new standard) and thecasewitha new standard. ForTrial StandardLevel 4. the increase in national net presentvalue is estimated to be $1 billion.25

SinceDOE expectsthe Roll-up efficiency scenario toresultfrom standards adopted at Trial Standard Level 4. the burdens ofTrial Standard Level 4 on manufacturers are likelyto be severe. Not only doesDOE expectthe average loss in industry NPV tobe around 20percent.butimpacts on most manufacturers wouldreach almost 30 percent. Their longterm drop inreturn
oninvestment and shortterm drop in cashflow suggest that standards adopted atTrial StandardLevel 4 could accelerate the consolidation trend. possibly resulting in fewer choices for

consumers and in a slowing ofthe pace ofinnovation well intothe future. Furthermore. the cumulativeimpact on the industry ofall newFederal and State regulations is estimatedto exceed $782 million.

ForTrial Standardlevel 4.the average purchaser ofa split system air conditioner. the predominantclass with 65 percent ofall shipments.would see the installed price of$2236riseto $2571. an increase of$335. Lower utility bills from the energy savings wouldrepay this increase in 11.3 years and produce a total saving witha net presentvalue of$113 overthe 18.4 year life ofthe product. The average purchaser ofa single package air conditioner. which represents 10 percent ofall shipments. would seethe average installedprice of$2607 rise to $3032. an increase of$425. Lower utilitybills from the energy savings wouldrepay this increase in 14.5 years and produce a total saving witha net

..Generating capacity. carbon. andNOx reductions are based on Roll-up efficiency scenario.

25Underthe NAECA efficiency scenario.the increase innational net present value would be

zero. presentvalue of$29 overthe 18.4 year life ofthe product.

The average purchaser ofa split systemheatpump. whichrepresents 22 percent ofall shipments. would seethe average installedprice of$3668 rise to $4000. an increase of$332. Lower utilitybills from the energy savings wouldrepaythis increase in 6.4 years andproduce a total saving with a net presentvalue of$372 over the 18.4 year life oftheproduct. Theaverage purchaserofa singlepackage heat pump.whichrepresents 4 percent ofall shipments.would seethe average installed price of$3599 rise to $4034. an increase of$435. Lower utilitybills from the energy savings wouldrepay this increase in 8.4 years and produce

a total saving with a net present value of$353 overthe 18.4 year life ofthe product. While the average consumer purchasinga 13 SEER airconditioner or heat pump would experience a net saving overthe lifetime ofthe product.

a substantial fraction ofall households wouldeXferiencenet costs exceeding 2 percent 0 the totallife-cycle costof today'sbaseline units. Thirty-nine percent ofthehouseholdswith split system airconditioners. 52 percentwith singlepackage airconditioners. 6 percentwith splitsystem heat pumps and 12 percentwith single package heat pumpswould experience a net cost. The percentage oflow-income consumers whowould experience netcosts exceeding 2 percent ofthe total lifecycle cost oftoday's baseline units is greaterthanthat ofthe average household; 50percent oflow-income households with split system air conditioners. 61 percentwith single package air conditioners. 12 percent with split systemheat pumps and 20 percentwith single packageheat pumps. Also. the possibilitythat many consumerswouldincur substantial installation costs is great because 13 SEER equipment often will not fit in the

same space as current 10SEER equipment. Inlight ofthe higher purchase costincrease experiencedby all consumers andthe percentage of households that experience life-cycle costincreases. inparticularlow-income households. which experience life-cycle costincreases. consumerburdens are particularly acute underTrial Standard Level 4.

DOE concludesthat at Trial Standard Level 4. thebenefits ofenergy savings. generating capacity andemission avoidance. andnetbenefittothe nation's consumerswouldbe outweighedbythe maldistribution of

consumerbenefits. the potential increase in installationcosts for some consumersrelatedto installing potentiallylarger equipment. and the costto manufacturers takinginto accountthe cumulativeregulatory burden. Trial StandardLevel 4 introducesthe serious concern that prospective owners ofairconditioning heat pump systems would instead purchase less costly air conditioner resistanceheater combinationsbecause ofthe substantial purchaseprice differential between heatpumps and air conditioners. As discussed in the January 22 notice offinal rulemaking (66 FR 7196). the energy savings from the more efficientheat pumps wouldbe eliminated ifonly a small fracticd of heat pump owners (4 percent) switched to resistance heating. Tl-.ose households residing in manufactur·!d hou.ing. which is often shipped from tb factory without an airconditiOl ing !;Yio'em but with a resistance furnac. migM be inclinedto simply add & lower c.)st air conditionerand retain 

### tl e resh.tance furnace instead ofreplac;n,1 the resistance furnace with a ht'at pur'p. In short. the large financial bmdem ( f Trial StandardLevel 4 are mIt outweighedbythe expected i1nanclal benefits. Otherpotential**burd!~ns** includepossiblehealth effects r:auf'ed indirectly by foregone air conditioning purchases and possible lessening of competition. as determined by DOJ in its letter ofApril 5. 2001 to DOE regarding theJanuary 2001 final rule. Consequently. DOE determines that Trial StandardLevel 4 is not economicallyjustified.

Next. DOE consideredTrial Standard Level 3. This level specifies 12 SEER equipmentfor airconditioners and 13 SEER equipmentfor heat pumps. In consideringTrial Standard Level 3. DOE assumed the NAECA efficiency scenario andreverse engineering costestimates tobethe mostprobable. (See Section 8.4.8 ofthe TSD for the reasons DOE considers the Roll-up efficiency scenario most probable atTrial Standard Levels 4 and 5 and theNAECA efficiency scenario most probable at Trial StandardLevels 1. 2 and 3.)

ForTrial Standard Level 3. primary energy savings between 2006 and 2030

areestimated to be 3.5 quads. which DOE considers significant. The energy savingsthrough 2020 wouldresult in avoidance ofapproximately 10.1 GW in installed generatingcapacity in 2020. Forcomparison.the generatingcapacity is equivalent to avoidingthe need for 25 large 400 megawatt powerplants. and reduced emissions would range up to 28 Mt ofcarbon equivalent and up to 97 kt ofNOX .26 Trial StandardLevel 3 would

2. Generating capacity. carbon. and NOx reductions are based on NAECA efficiency scenario.

## EE-RM/STD-98-440- 304

Federal Register/Vol. 67, No. 100/Thursday, May 23, 2002/Rules and Regulations 36401

lower peak electricity demand this increase in 8.4 years and produce large 400 megawatt power plants, and compared to the base case. That would a total saving with a net present value reduced emissions would range upto 24 allow utility service areas to build less of$353 over the 18.4 year life ofthe Mt ofcarbon equivalent and up to 83 kt

new capacity, with attendant product. ofNOx.28 Trial Standard Level 2would environmental benefits. Like Trial Standard Level 4, Trial lower peak electricity demand

ForTrial Standard Level 3, the Standard Level 3raises the serious compared to thebase case. That would increase in national net present value is concern that prospective owners ofair allow utility service areas to either estimated to be $1billion.z7

### Since DOE conditioning heat pump systems would avoid build less new capacity, with expects the NAECA efficiency scenario purchase less costly air conditioner attendant environmental benefits. For to result from standards adopted at Trial resistance heater combinations. In this Trial Standard level 2,the increase in Standard Level 3,the burdens ofTrial case there is a potential loss ofenergy national net present value is estimated Standard Level 3on manufacturers are savings because ofthe lower standards to be $2billion, which represents the likely to beless severe than at Trial for air conditioners compared to heat highest level for all the standard levels Standard Level 4. DOE expects the pumps, which could eliminate all considered. 2

### 9 average loss in industry NPV to be energy savings from the more efficient Since DOE expects theNAECA around 11 percent, but impacts on most heat pumps ifonly a small fraction of efficiency scenario to result from manufacturers would be around 17 heat pump owners (4 percent) switched standards adopted at Trial Standard percent. Their long term drop in return to resistance heating. Trial Standard Level 2,theburdens ofTrial Standard

on investment and short term drop in Level 3poses a serious concern Level 2on manufacturers are likely to cash flow suggest that standards regarding potential anti-competitive be moderate. DOE expects the average adopted atTrial Standard Level 3could effects because the size and cost ofthe loss in industry NPV to be around 10 accelerate the consolidation trend, higher efficiency heat pumps could percent, with impacts on most possibly resulting in fewer choices for reduce competition between manufacturers around 16 percent. Their

consumers and in a slowing ofthepace manufacturers ofheat pumps and long term drop in return on investment ofinnovation well into the future. manufacturers ofresistance heating and and short term drop in cash flow are Furthermore, the cumulative impact of other lower costheating systems. moderate, suggesting that standards all new Federal and State regulations DOE concludes that, atTrial Standard adopted at Trial Standard Level 2would would exceed $650 million. Level 3,the benefits ofenergy savings, not accelerate the consolidation trend,

At Trial Standard Level 3,the average generating capacity and emission and could result in more choices for purchaser ofa split system air avoidance, and netbenefit to the consumers and raise the pace of conditioner, the predominant class with nation's consumers wouldbe innovation. Furthermore, the 65 percent of all shipments, would see outweighed by the maldistribution of cumulative impact ofall new Federal the installed price of$2236 rise to consumer benefits and manufacturer and State regulations is estimated to $2449, an increase of$213. Lower costs, the likelihood ofhigher exceed $638 million utility bills from theenergy savings installation costs resulting fromFor Trial Standard Level 2, the would repay this increase in 9.8 years potentially larger equipment, and the average purchaser ofa split system air and produce a total saving with a net net impact on the industry in light of conditioner, the predominant class with present value of$113 over the 18.4 year the cumulative regulatory burden. The 65 percent ofall shipments, would see life ofthe product. The average most serious concern isthe possibility the installed price of$2236 rise to purchaser ofa single package air ofequipment switching that would $2449, an increase of $213. Lower conditioner, which represents 10 likely substantially reduce the utilitybills from the energy savings percent ofall shipments, would see the calculated energy savings, drastically utiy bs froth inee in 9.8ears
average installed price of$2607 rise to reducing the potential benefits. Other would repay this increase in .8 years 

### $2765, an increase of$158. Lower possible burdens nclude lessening of and produce a toal avg th utilitybills from the energy savings competition, as determined by DOJ in pesent value of$113 over the 18.4 year wouldrepay this increase in 7.5 years its April 5, 2001 letterto DOE regarding life ofthe product. The average and produce a total saving with anet theJanuary 2001 final rule, and adverse purchaser ofa single package air present value of$163 over the 18.4 year health effetscaused byforgone air conditiof shichrepresents 1see the 

### life ofthe product. conditioner purchases. Consequently, percent ofall shipments, would see the

The averof thage producthaser of a split DOE determines that Trial Standard average installed price of$2607 rise to Theaverage purchaser ofa splito,$2765 an increase of$158. Lower 

### system heat pump, which represents 22 Level 3is not economically justified. $2765, an inse of$158. Lower percent ofall shipments, would see the Next. DOE considered Trial Standard utilitybills from theenergy savings

Pergeinstaed price of $ rise to Level 2.This level specifies 12 SEER would repay this increase in 7.5 years average installed price of $3668 rise to and produce a total saving with a net 

### $4000, an increase of$332. Lower equipment for all product classes, and ad total saving with a net utiit00sfrom 

### the energy savings irp this isthe level thatDOE has present value of$163 over the 18.4 year utility bills from the energy savings determined isthe maximum efficiency life ofthe product. would repay this increase in 6.4 years level that is economically justified. In The average purchaser ofa split and produce a total saving with a net considering Trial Standard Level 2, DOE system heat pump, which represents 22 present value of$372 over the 18.4 yearassumed the NAECA efficiency scenario percent ofall shipments, would see the

ulife ofthe producti The averageand reverse engineering cost estimates average installed price of $3668 rise to pumpcrchaser ofa single package heat ll to be the most probable. Primary energy $3812, an increase of$144. Lower pump, which represents 4 percent of all 2utility bills from the energy savings 

### nshipments, would see the average sigs between 2006 and 2030 is utility bills from the energy savings installed price of $3599 rise to $4034rag

,an estimated to be 3 quads, which DOE would repay this increase in 3.9 years installcrease of $43599. Lower utility billsto $4034, considers significant. The energy and produce a total saving with a net incfrom theenergy savings would repay savings through 2020 would result in 

### avoidance ofapproximately 8.7 GW in Z8Generating capacity, carbon, and NOx

Under the Roll-up efficiency scenario, th installed generating capacity in 2020. Under the Roll-up efficiency scenario, the increase in national net present value would e$2 For comparison, the generating capacity increasein national net present value would be $3 billion. is equivalent to avoiding the need for 22 billion. 

### EE-RM/STD-98-440-

# 3oc+

Federal Register/Vol. 67, No. tOO/Thursday, May 23, 2002/Rules and Regulations 36401

lowerpeak electricity demand comparedto thebasecase. That would allowutility service areas to buildless

new capacity, with attendant environmentalbenefits.

ForTrial StandardLevel 3, the increase innational net presentvalue is estimated to be$1 billionP SinceDOE expectsthe NAECA efficiency scenario toresult from standards adopted atTrial StandardLevel 3, theburdens ofTrial StandardLevel 3 onmanufacturers are likely to be less severethan at Trial StandardLevel 4. DOE expects the average loss inindustryNPV tobe around 11 percent, butimpacts onmost manufacturers wouldbearound 17 percent. Their longterm drop in return
oninvestment and shortterm drop in cash flow suggest that standards adopted atTrial StandardLevel 3 could accelerate the consolidationtrend, possibly resulting infewer choices for

consumers and in a slowing ofthe pace ofinnovation well intothe future. Furthermore, the cumulative impact of all newFederal and Stateregulations wouldexceed $650 million.

At Trial StandardLevel 3, the average purchaser ofa split system air conditioner, the predominantclass with 65 percent ofall shipments, would see the installed price of$2236rise to $2449, an increase of$213. Lower utilitybills from the energy savings wouldrepay this increase in 9.8 years andproduce a total savingwith a net presentvalue of$113 overthe 18.4 year life oftheproduct. The average purchaser ofa Single package air conditioner, whichrepresents 10 percent ofall shipments, would see the average installedprice of$2607 rise to $2765, an increase of$158. Lower utilitybills from the energy savings wouldrepay this increase in 7.5 years andproduce a total saving witha net presentvalue of$163 overthe 18.4 year life ofthe product.

The average purchaser ofa split systemheatpump, whichrepresents 22 percent ofall shipments, would see the average installedprice of$3668 rise to $4000, an increase of$332. Lower utilitybills from the energy savings wouldrepay this increase in 6.4 years andproduce a total saving witha net presentvalue of$372 over the 18.4 year life ofthe product. The average purchaserofa single package heat pump, which represents 4 percentofall shipments, would see the average installed price of$3599 rise to $4034, an increase of$435. Lower utilitybills from the energy savings wouldrepay

27Underthe Roll-up efficiency scenario. the increase innational net preSBnt value wouldbe $2 billion. 

### this increase in 8.4 years andproduce

a total saving witha net presentvalue of$353 over the 18.4 year life ofthe product.

Like Trial StandardLevel 4, Trial StandardLevel 3raises the serious

concernthat prospective owners ofair conditioningheatpump systems would purchase less costly air conditioner resistance heater combinations. In this

case there is a potential loss ofenergy savingsbecauseofthelowerstandards for airconditioners comparedtoheat pumps, which couldeliminate all energy savings from the more efficient heat pumpsifonly a small fraction of heat pump owners (4 percent) switched to resistance heating. Trial Standard Level 3poses a serious concern regarding potential anti-competitive effects because the size andcost ofthe hiJdler efficiency heat pumps could

reauce competitionbetween manufacturers ofheatpumps and manufacturers ofresistance heating and otherlowercostheating systems.

DOE concludes that, atTrial Standard Level 3, thebenefits ofenergy savings, generating capacity and emission avoidance, and netbenefitto the nation's consumers wouldbe outweighedbythe maldistribution of

consumerbenefits and manufacturer costs, the likelihood ofhigher installation costs resulting from potentially larger equipment, and the net impact on the industry in light of the cumulativeregulatory burden. The most serious concern is thepossibility ofequipment switchingthat would likely substantiallyreduce the calculated energy savings, drastically reducing thepotential benefits. Other pOSSible burdens include lessening of competition, as determinedby DO] in its April 5, 2001 letterto DOE regarding theJanuary 2001 final rule, and adverse health effects causedby forgone air conditionerpurchases. Consequently, DOE determinesthatTrial Standard Level 3is noteconomicallyjustified.

Next, DOE consideredTrial Standard Level 2. Thislevel specifies 12 SEER equipment for all product classes, and this is the level thatDOE has determined is the maximumefficiency level that is economicallyjustified. In consideringTrial StandardLevel 2, DOE assumedtheNAECA efficiency scenario andreverse engineering costestimates tobe the mostprobable. Primary energy savings between 2006 and 2030 is estimatedto be 3 quads, whichDOE considers significant. Theenergy savings through 2020wouldresult in avoidance ofapproximately 8.7 GW in installedgenerating capacity in 2020. Forcomparison, the generatingcapacity is equivalentto avoidingthe need for 22 large 400 megawatt power plants, and reducedemissions would range up to 24 Mt ofcarbon equivalent andup to 83 kt ofNOx.28 

### Trial Standard Level 2 would lower peak electricity demand compared to the base case. Thatwould allow utility service areas to either avoidbuild less new capacity, with attendant environmental benefits. For Trial Standard level 2, the increase in national net present value is estimated tobe $2 billion, whichrepresents the highest level for all the standard levels considered. 29



### Since DOE expects the NAECA efficiency scenario to result from standards adopted at Trial Standard Level 2, theburdens ofTrial Standard Level 2 on manufacturers are likely to be moderate. DOE expects the average loss in industryNPV to be around 10 percent, with impacts on most manufacturers around 16 percent. Their longterm drop inreturn on investment and short term drop incash flow are moderate, suggesting that standards adopted at Trial Standard Level 2 would not accelerate the consolidation trend, and couldresult inmore choices for

consumers andraise the pace of innovation. Furthermore, the cumulative impact ofall new Federal and State regulations is estimated to exceed $638 million.

ForTrial Standard Level 2, the average purchaser ofa split system air conditioner, the predominantclass with 65 percent ofall shipments,would see the installed price of$2236 rise to $2449, an increase of$213. Lower utilitybills from the energy savings wouldrepay this increase in 9.8 years andproduce a total saving with a net presentvalue oU113 over the 18.4 year life ofthe product. The average purchaser ofa single package air conditioner, whichrepresents 10 percent ofall shipments,would see the average installed price of$2607 rise to $2765, an increase of$158. Lower utilitybills from the energy savings would repay this increase in 7.5 years andproduce a total saving with a net presentvalue of$163 over the 18.4 year life ofthe product.

The average purchaser ofa split systemheatpump, whichrepresents 22 percentofall shipments, would see the average installedprice of$3668 rise to $3812, an increase of$144. Lower utilitybills from the energy savings wouldrepay this increase in 3.9 years andproduce a total saving with a net

"Generating capacity. carbon, and NO, reductions are based on NAECA efficiency scenario.

••Underthe Roll-up efficiency scenario, the increase innational net present value would be $3 billion.

## EE-RM/STD-98-440-30,
36402 Federal Register/Vol. 67, No. 100/Thursday, May 23, 2002/Rules and Regulations

present value of$365 over the 18.4 year present value increase, and emission through-the-wall equipment would not life oftheproduct. The average reductions resulting from the standards incur anincrease in life-cycle cost, and purchaser ofa single package heat outweigh the burdens. The burdens that consumers ofpackaged throughpump, which represents 4 percent ofall include the loss of manufacturer net the-wall equipment would incur an shipments, would see the average present value, taking into account the increase of$52 over the life ofthe installed price of$3599 riseto $3748, an cumulative regulatory burden and equipment. In no case would any increase of $149. Lower utility bills annual cash flow, increases in life-cycle consumer ofsplit through-the-wall fromthe energy savings would repay cost for someusers ofproducts covered products be expected to incur life-cycle this increase in 4 years and produce a by today's rule, any possible increase in costs greater than 2percent ofthe total total saving with a netpresent value of health problems caused by consumers life-cycle cost, and only 17percent of $421 over the 18.4 year life ofthe foregoing air conditioner purchases, any consumers ofpackaged through-the-wall product. possible reduction in the ability ofthe equipment would be expected to incur

While the average consumer productto dehumidify, any possible cost increases greater than 2percent of purchasing a 12 SEERair conditioner or effect on competition (addressed by DOJ the total life-cycle cost. heat pump would experience a net in its October 19, 2001 letter to DOE), DOE concludes that standard levels saving over the lifetime oftheproduct, and any possible difficulty in installing higher than 10.9 SEER (splitthroughsome households would experience net the new baseline products into the-wall) and 10.6 SEER (packaged
costs exceeding 2percent ofthetotal replacement applications. through-the-wall) are technologically life-cycle cost oftoday's baseline units. Concl s R g S

- feasible, but are not economically Thus, 25 percent ofthe households with C Conlusions egardgSpace- justified. DOE's analysis on three split system airconditioners and 9 Constrained Productsthrough-the-wall models suggests that percent with single package air Ifa 12 SEERminimum requirement those products could attain efficiencies conditioners would experience a net for air conditioners and heat pumps is as high as 11.4 SEER, but the results are cost. No households with heat pumps implemented, DOE's analysis shows not conclusive and cannotbe would experience a netcost. The that ofall potential space-constrained confidently applied to all through-thepercentage oflow-income consumers products, only those with through-the- wall products. DOE's analysis does not who would experience netcosts wall condensers and small duct, high provide enough evidence to convince us exceeding 2percent ofthe total life- velocity systems need special that levels higher than 10.9 SEER (10.6 cycle cost oftoday's baseline units is consideration. SEER for packaged through-the-wall) greater than that for an average1 Through-the-Wall Productswill be technologically feasible during household. Thus, 34percent oflow- the five year period during which income households with split system air The TSD contains a new Appendix L manufacturers wouldprepare to meet conditioners and 14 percent with single describing the results ofourrecent re- thenew requirements. DOE's analysis package air conditioners would evaluation ofthose products. They does indicate that opportunities for experience anet cost. No low-income demonstrate that split through-the-wall efficiency improvement do exist, and households with heat pumps would equipment can attain 10.9 SEER using that manufacturers ofthose products experience a net cost. Also, the designs and technologies that are should continue to investigate those possibility that consumers would incur commonly applied or available, with opportunities. substantial installation costs is less than price impacts similar tothose that A serious concern that DOE has that with a 13 SEER standard because 12 conventional equipment would considered isthat the lower throughSEER equipment is more likely to fit in experience in meeting the proposed 12 the-wall standards might encourage the same space as current 10 SEER SEER standard. Thepackaged purchasers ofconventional equipment equipment. In light ofthe moderate equipment analyzed was demonstrated to shift to through-the-wall products, purchase cost increase experienced by tobe capable ofattaining only a 10.6 undermining thebenefits ofthe 12 SEER all consumers, the percentage of SEER rating, although comments standard for conventional products. households, inparticular low-income received indicate that one manufacturer DOE is therefore limiting the new households, which experience life-cycle ofpackaged through-the-wall through-the-wall classes to products
cost increases, consumer burdens are equipment, Armstrong, expects their manufactured before January 23, 2010. substantially less severe under Trial equipment to be capable ofattaining 11 See definition of "through-the-wall air Standard Level 2 than Trial Standard SEER. conditioner and heat pump." Thus, Level 4. Based on this evaluation, DOE adopts these classes will exist only for a period

After carefully reconsidering the new product classes for products that offour years following the compliance analyses and comments, and giving have through-the-wall condensers and date established for thenew standards appropriate weight to consumer impacts are intended for replacement for conventional products. During that and cumulative regulatory burden inthe applications. The new classes are time, the availability ofsuitable highassessment ofthebenefits and burdens, required to meet minimum efficiencies efficiency components will likely DOE today amends the energy lower than those ofthe other classes: increase and the manufacturers of conservation standards for central air 10.9 SEER and 7.1 HSPF for through- through-the-wall products will be able conditioners and central air the-wall air conditioner andheat pump to investigate options for meeting the conditioning heat pumps at Trial split-systems, and 10.6 SEER and 7.0 more stringent 12 SEERlevel. Both will Standard Level 2. DOE concludes this HSPF forthrough-the-wall air make it easier for through-the-wall standard saves a significant amount of conditioner single-package systems. products to attain the 12 SEER energy and is technologically feasible DOE's analysis suggests those products minimum efficiency required ofother and economically justified. In can attain these levels without products, thereby making 12 SEER a determining economic justification, substantial redesign or price increases technologically feasible and DOE concludes thatthe benefits of thatwould resultin aloss ofmarket economically justified level. The sunset energy savings, the projected amount of share to conventional products. Also, provision will help to ensure that other avoided power plant capacity, consumer the life-cycle cost analysis confirms manufacturers will not make the life-cycle cost savings, national net that, on average, consumers ofsplit investment required to market through

### 36402 

## EE-RM/STO-9S-44o--3OLI Federal 

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presentvalue of$365 over the 18.4 year life ofthe product. The average purchaser ofa single package heat pump,whichrepresents 4 percent ofall shipments, would see the average installed price of$3599 rise to $3748, an increase of$149. Lowerutilitybills from the energy savings wouldrepay this increase in4 years and produce a total saving witha netpresentvalue of $421 over the 18.4 year life ofthe product.

While the average consumer purchasinga 12 SEER air conditioneror heat pumpwould experience a net saving overthe lifetime oftheproduct,
some households would experience net costs exceeding 2percentofthetotal life-cycle cost oftoday'sbaseline units. Thus, 25 percent ofthehouseholds with split system air conditioners and 9 percentwith single package air conditioners wouldexperience a net cost. No households with heat pumps would experience a net cost. The percentage oflow-income consumers whowould experience net costs exceeding 2percent ofthetotal lifecycle cost oftoday'sbaseline units is greater thanthat for an average household. Thus. 34 percent oflowincomehouseholdswith split system air conditioners and 14 percentwith single package air conditioners would experience a net cost. No low-income households withheat pumpswould experience a net cost. Also. the possibilitythat consumerswould incur substantial installation costs is less than that with a 13 SEER standard because 12 SEER equipment is more likelyto fit in the same space as current 

### 10 SEER equipment. In 

### light ofthe moderate purchase cost increase experiencedby all consumers. thepercentage of households. inparticular low-income households. which experience life-cycle costincreases, consumerburdens are substantially less severe underTrial StandardLevel 2 

### thanTrial Standard Level 4.



### After carefullyreconsidering the analyses and comments. and giving appropriate weight to consumerimpacts and cumulative regulatory burdeninthe assessment ofthebenefits andburdens. DOE today amendsthe energy conservation standards for central air conditioners and central air conditioningheatpumps atTrial StandardLevel 2. DOE concludesthis standard saves a significant amountof energy and is technologically feasible and economicallyjustified. In 

### determiningeconomicjustification. DOE concludes thatthebenefits of energy savings. the projected amountof avoided powerplantcapacity. consumer life-cycle cost savings. national net presentvalue increase. and emission reductionsresulting from the standards outweightheburdens. Theburdens includethe loss ofmanufacturer net presentvalue. taking into account the cumulativeregulatory burden and annual cash flow. increases inlife-cycle costfor someusers ofproducts covered bytoday's rule, anypossible increase in healthproblems causedby consumers foregoing airconditioner purchases. any possible reductioninthe ability ofthe productto dehumidify, anypossible effect on competition (addressedbyDOJ in its October 19. 2001 letter to DOE), and any possible difficulty in installing thenewbaseline products into replacement applications.
C. Conclusions RegardingSpaceConstrainedProducts

If

### a 12 SEERminimumrequirement for air

### conditioners andheat pumps is implemented, DOE's analysis shows that ofall potential space-constrained products. only those withthrough-thewall condensers and small duct. high velocity systems need special consideration.

1.

### Through-the-Wall Products

TheTSD contains a new Appendix L describingtheresults ofourrecent re- evaluation ofthose products. They demonstrate that splitthrough-the-wall equipment can attain 10.9 SEERusing designs andtechnologies that are commonly applied or available, with price impacts similarto those that conventional equipmentwould experience inmeetingthe proposed 12 SEER standard. The packaged equipmentanalyzed was demonstrated to be capable ofattaining only a 10.6 SEERrating. although comments received indicate that onemanufacturer ofpackaged through-the-wall equipment. Armstrong. expects their equipmentto be capable ofattaining 11 

### SEER.

Based onthis evaluation. DOE adopts

new productclasses for products that have through-the-wall condensers and

are intended for replacement applications. The new classes are required to meet minimumefficiencies lower thanthose ofthe other classes: 10.9 SEER and 7.1 HSPF for throughtha-wall air conditioner andheat pump split-systems. and 10.6 SEER and 7.0 HSPF for through-tha-wall air conditioner single-package systems. DOE's analysis suggests thoseproducts

can attain these levels without substantial redesign or price increases that would result in a loss ofmarket shareto conventional products. Also. the life-cycle cost analysis confirms that, onaverage. consumers ofsplit through-the-wall equipment would not incur an increase in life-cycle cost, and that consumers ofpackaged throughthe-wall equipmentwould incuran increase of$52 over the life ofthe equipment. In

### no case would any consumer ofsplitthrough-the-wall products be expected to incur life-cycle costs greater than 2 percent ofthe total life-cycle cost. and only 17 percent of

consumers ofpackaged through-the-wall equipment wouldbe expected to incur cost increases greater than 2 percent of the total life-cycle cost.

DOE concludes that standard levels higher than 10.9 SEER (split throughthe-wall) and 10.6 SEER (packaged through-the-wall) are technologically feasible, but are not economically justified. DOE's analysis onthree through-the-wall models suggests that thoseproducts could attain efficiencies

as high as 11.4 SEER. butthe results are not conclusive and cannotbe confidently applied to all through-thewall products. DOE's analysis does not provide enough evidence to convince us that levels higher than 10.9 SEER (10.6 SEER for packaged through-the-wall) will be technologically feasible during the five yearperiod during which manufacturers wouldprepare to meet the newrequirements. DOE's analysis does indicatethat opportunities for efficiency improvement do exist. and that manufacturers ofthose products should continueto investigate those opportunities.

A serious concern that DOE has considered is thatthe lower throughthe-wall standards might encourage purchasers ofconventional equipment to shiftto through-the-wall products, underminingthebenefits ofthe 12 SEER standard for conventional products. DOE is therefore limitingthe new through-the-wall classes to products manufacturedbefore January 23, 2010. 

### See definition of"through-the-wall air conditioner andheat pump." Thus, these classes will exist only for a period offour years following the compliance date established for the new standards for conventionalproducts. During that time, the availability ofsuitable highefficiency components will likely increase andthe manufacturers of through-the-wall products will be able to investigate options for meeting the

more stringent 12 SEER level. Both will make it easier for through-the-wall products to attainthe 12 

### SEER minimum efficiencyrequired ofother products. thereby making 12 SEER a technologically feasible and economicallyjustified level. The sunset provision will help to ensure that other manufacturers will not make the investment requiredto market through-

## EE-RM/STD-98-440- 30'

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the-wall products heavily for As previously discussed (Section through Friday, telephone (202) 586- conventional applications during the VI.G.1, "Peak Power"), the model used 3142. four year period. Itwill also limit the by DOE to estimate both peak power The October 5,2000 NOPR contained time during which lower efficiency and power plant emission impacts due a summary oftheRegulatory Analysis through-the-wall equipment is installed, to appliance standards was updated to which focused on the major alternatives ensuring that additional energy savings include a more representative set of considered in arriving at the approach associated with the 12 SEER level are end-use load shapes for theresidential, to improving the energy efficiency of realized in acertain time period. commercial, industrial, and consumer products. 65 FR 59627-29.

To further limit the application ofthe transportation sectors. As aresult ofthis The alternatives considered in DOE's through-the-wall class, products in update, NEMS-BRS estimates somewhat analysis are consumer product labeling, these classes may not exceed 30,000 greater power plant emissionimpacts consumer education, prescriptive BTU/hr in cooling capacity, may not (in the form ofreduced CO 2 

### and NOx standards, consumer tax credits, conBTU/in specia weatherization featurs emissions)from increased central air consumer rebates, manufacturer tax contain special weatherization features conditioner and heat pump standards. credits, voluntary efficiency targets, low 

### that would allow them tobe installed conditioner and heat pump standards. totally outdoors, and must bemarked Appendix M ofthe TSDincludes an income subsidy, mass government for installation only through an exterior pdated set ofpower plant emission purchases, and performance standards. wall. DOE also limits the size ofthe area impacts. These changes, which are The reader is referred to the complete O s i h e i

. discussed in theFONSI, do not affect "Regulatory Impact Analysis," which is used for condenser air exchange in DOE's finding ofno significant impact. contained in the TSD, available as order to limit these classes to those The comments ofsome environmental indicated at the beginning ofthis notice products intended primarily for advocates argue that DOE is required to or from the contact person named at the replacement applications. prepare an environmental impact beginning ofthis notice. The TSD 2. Small Duct, High Velocity Systems statement for today's final rule because, provides: (1)A statement ofthe problem intheir view, DOE is "rolling back" 13 addressed by this regulation, and the In today's final rule, DOE establishes SEER standards, and that constitutes a mandate for government action; (2) a

a separate product class for SDHV major agency action significantly description and analysis ofthe feasible systems and retains theNAECA affecting the quality ofthe environment. policyalternatives to this regulation; (3) standards for these products pending As explained in Section VI.H.5 ofthis a quantitative comparison ofthe further study to establish appropriate Supplementary Information, DOE impacts ofthe alternatives; and (4)the higher standard levels. DOE intends to believes these comments are based on national economic impacts ofthe publish a final rule for the test an erroneous premise, namely, that the proposed standard. procedure in the nearfuture. Any future January 22 final rule attained permanent Review UndertheRegulatory workto establish appropriate minimum status even though the rule never Flexibility Act efficiency standards for SDHV systems became effective. Instead, thecorrect will bebased on thetesting baseline for assessing the impacts of The Regulatory Flexibility Act, 5 requirements developed for SDHV today's rule, in DOE's view, are the U.S.C. 601 etseq., requires that a systems inthe testprocedure revision existing energy conservation standards Federal agency prepare aregulatory currently being finalized, or in a future established by NAECA (i.e, SEER of10.0 flexibility analysis for any rule for revision specifically aimed at SDHV and HSPF of6.8 for split systems which the agency is required to publish products. manufactured after January 1, 1992, a general notice ofproposed SEER of9.7 and HSPF of6.6 for single rulemaking. Such an assessment ofthe VI. ProceduralIssues andRegulatory package systems manufactured after impact of regulations on small Review January 1, 1993). The 12 SEER standard businesses is not required ifthe agency A. Review UndertheNational intoday's rule will increase the energy certifies thatthe rule would not, if Environmental PolicyAct efficiency ofthe most common type of promulgated, have a significant central air conditioners by economic impact on a substantial DOE prepared anEnvironmental approximately 20 percent. number ofsmall entities (5U.S.C. Assessment (EA) (DOE/EA-1352) 605(b)). To be categorized as a "small" available from: U.S. Department of B. Review Under Executive Order12866 airconditioning and warm air heating Energy, Office ofEnergy Efficiency and Today's regulatory action has been equipment manufacturer, a firm must Renewable Energy, Forrestal Building, determined to be an "economically employ no more than 750 employees. Mail Station EE-41, 1000 Independence significant regulatory action" under In the October 5,2000 NOPR, DOE Avenue, SW, Washington, DC 20585- Executive Order 12866, "Regulatory discussed the potential impacts on 0121, (202) 586-0854. DOE found the Planning and Review." 58 FR 51735 small businesses oftheOctober 5 environmental effects associated with (October 4, 1993). Accordingly, today's proposed rule (corresponding to Trial various standard efficiency levels for action was subject to review under the Standard Level 3), and certified that the central air conditioners andheat pumps, Executive Order bythe Office of proposed standard levels would not including 12 SEER, to benot significant. Information and Regulatory Affairs have a significant economic impact on Therefore DOE is publishing, elsewhere (OIRA) ofthe Office ofManagement and a substantial number ofsmall entities. in this issue ofthe Federal Register a Budget. 65 FR 59629-30. DOEreported that Finding ofNo Significant Impact The draft submitted to OIRA and nearly all small businesses engaged in (FONSI) pursuant to theNational other documents submitted to OIRA for themanufacture ofcentral air Environmental Policy Act of 1969 review have beenmade a part ofthe conditioners and heat pumps produce (NEPA),42 U.S.C. 4321 etseq., the rulemaking record and are available for products that DOE has called "niche" regulations ofthe Council on public review in DOE's Freedom of products. To avoid adversely impacting Environmental Quality (40 CFR Parts Information Reading Room, 1000 manufacturers ofniche products, DOE 1500-1508), and DOE's regulations for Independence Avenue, SW., proposed a separate product class for compliance with NEPA (10 CFR Part Washington, DC 20585, betweenthe through-the-wall equipment, much of 1021). hours of9 a.m. and 4 p.m., Monday which ismanufactured by small 

### EE-RM/STD-98-440-

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the-wall productsheavily for conventional applications duringthe four year period. Itwill also limitthe time duringwhich lowerefficiency through-the-wall equipmentis installed, ensuringthat additional energy savings associated with the 12 SEER level are realized in a certaintime period.

Tofurther limitthe application ofthe through-tha-wall class, products in these classes may notexceed 30,000 BTU/hrincoolingcapacity, may not contain special weatherizationfeatures that would allowthem to 

### be installed totally outdoors, andmustbe marked for installation only through an exterior wall. DOE also limitsthe size ofthe area used for condenserairexchange in orderto limitthese classes to those products intendedprimarily for replacement applications.
2. Small Duct, High Velocity Systems

Intoday's final rule. DOE establishes

a separate productclass for SDHV systems andretainstheNAECA standards for these products pending further studyto establish appropriate higher standard levels. DOE intendsto publish a final rule for the test procedure inthe nearfuture. Any future workto establish appropriate minimum efficiency standards for SDHV systems wil1 

### be based onthetesting requirements developed for SDHV systems inthetest procedurerevision currentlybeing finalized. orin a future revision specifically aimed at SDHV products.·


## vm. ProceduralIssues

### andRegulatory Review
A. 

### Review Under theNational EnvironmentalPolicyAct

DOE prepared anEnvironmental Assessment (EA) (DOEIEA-1352) availablefrom: U.S. Department of Energy, Office ofEnergy Efficiency and RenewableEnergy, Forrestal Building. Mail StationEE-41. 1000Independence Avenue. SW, Washington. DC 20585- 0121, (202) 586-0854. DOE found the environmental effects associated with various standard efficiencylevels for central airconditioners andheatpumps. including 12 SEER. tobenot significant. Therefore DOE ispublishing. elsewhere inthis issue oftheFederalRegister a Finding ofNo SignificantImpact (FONSI) pursuanttothe National Environmental PolicyAct of1969 (NEPA). 42 U.S.C. 4321 et

### seq., the regulations oftheCouncil on Environmental Quality (40 CFR Parts 1500-1508), andDOE's regulations for compliance withNEPA (10 CFR Part 1021). As previously discussed (Section V1.G.l. "PeakPower"), the model used byDOE toestimate bothpeakpower and powerplant emission impacts due to appliance standardswas updatedto includea more representative set of end-use load shapes for theresidential, commercial, industrial. and transportation sectors. As a result ofthis update. NEM8-BRS estimates somewhat greaterpowerplantemissionimpacts (inthe form of reduced CCh andNOx emissions) from increasedcentral air conditionerandheat pump standards. AppendixM oftheTSD includes an updated setofpower plantemission impacts. These changes, whichare discussed in theFONSI, donot affect DOE's finding ofno significant impact.

The comments ofsome environmental advocates arguethatDOE is requiredto prepare anenvironmental impact statementfor today's final rule because, intheirview. DOE is "rollingback" 13 SEER standards, andthat constitutes a major agency action significantly affecting the quality oftheenvironment. As explainedin Section V1.H.5 ofthis SupplementaryInformation. DOE believes these comments are based on
an erroneous premise. namely.thatthe January 22 final rule attainedpermanent status eventhoughthe rule never became effective. Instead.the correct baseline for assessingthe impacts of today'srule. inDOE's view. are the existingenergy conservation standards establishedby NAECA (i.e, SEER ofl0.0 andHSPF of6.8 for split systems manufactured afterJanuary 1, 1992, SEER of9.7 andHSPF of6.6 for single package systemsmanufactured after January 1, 1993). The 12 SEER standard intoday's rule will increase the energy effiCiency ofthe most common type of central airconditionersby approximately 20 percent. 

### B. Review UnderExecutive Order 12866

Today's regulatory actionhas been determinedtobe an "economically significantregulatory action" under Executive Order 12866. "Regulatory PlanningandReview." 58 FR 51735 (October 4,1993). Accordingly. today's action was subjecttoreviewunderthe Executive Orderbythe Office of Information andRegulatory Affairs (OIRA) ofthe Office ofManagement and Budget.

The draft submitted to OIRA and other documents submitted to OIRA for review havebeenmadea part ofthe rulemakingrecordand are available for publicreview inDOE's Freedom of InformationReadingRoom. 1000 Independence Avenue, SW.• Washington.DC 20585. betweenthe hours of9 a.m. and 4 p.m., Monday through Friday. telephone (202) 586- 3142.

The October 5, 2000 NOPR contained

a summary ofthe Regulatory Analysis which focused onthe major alternatives considered in arriving at the approach to improvingthe energy efficiency of

consumerproducts. 65 FR 59627-29. Thealternatives considered in DOE's analysis are consumerproductlabeling,

consumer education, prescriptive standards, consumertax credits,

consumerrebates, manufacturertax credits, voluntary efficiency targets, low income subsidy, mass government purchases, and performance standards. The reader is referred to the complete "Regulatory Impact Analysis," which is contained in theTSD, available as indicated at thebeginning ofthis notice

or from the contact personnamed at the beginning ofthis notice. TheTSD provides: (1) A statement ofthe problem addressed by this regulation. and the mandate for government action; (2) a description and analysis ofthe feasible policy alternatives to this regulation; (3)

a quantitative comparison ofthe impacts ofthe alternatives; and (4) the national economic impacts ofthe proposed standard.


### C. Review Under theRegulatory FlexibilityAct

The Regulatory Flexibility Act. 5 U.S.C. 601 

### etseq., requires that a Federal agency prepare a regulatory flexibility analysis for any rule for which the agency is required to publish

a general notice ofproposed rulemaking. Suchan assessment ofthe impact ofregulations on small businesses is notrequired ifthe agency certifies that the rule would not, if promulgated. have a significant economic impact on a substantial numberofsmall entities (5 U.S.C. 605(b)). Tobe categorized as a "small" airconditioningand warm air heating equipment manufacturer, a firm must employno morethan 750 employees.

In ilie October 5,2000NOPR, DOE discussed the potentialimpacts on smallbusinesses ofthe October 5 proposedrule (correspondingto Trial StandardLevel 3). and certified that the proposed standard levels would not have a significant economic impact on
a substantial number ofsmall entities. 65 FR 59629-30. DOE reported that nearly all small businesses engaged in themanufacture ofcentral air conditioners and heatpumps produce productsthat DOE has called "niche" products. To avoid adversely impacting manufacturers ofniche products, DOE proposed a separate product class for through-the-wall equipment. much of which is manufacturedby small

## EE-RM/STD-98-440..OLj

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manufacturers. See 65 FR 59609-11. In D.Review UnderthePaperwork or regulations that preempt State law or 

### the preamble to the January 22 final ReductionAct thathave federalism implications. rule, DOE addressed comments No new information or record keeping Agencies are required to examine the regarding the impacts more stringent requirements are imposed by this constitutional and statutory authority standards might have on the availability rulemaking. Accordingly, no Office of supporting any action that would limit ofniche products, and although the Management and Budget clearance is the policymaking discretion ofthe final rule adopted thehigher Trial required under the Paperwork States an ssessthe necessity Standard Level 4 standards, DOE Reduction Act. 44 U.S.C. 3501 etseq. for such actions. Agencies also must deferred setting an amended standard EReiwUdrxcuveOer198 

### have an accountable process to ensure deferred setting atsn6 FR 7175,7196- E.Review Under Executive Order12988 meaningful and timely input by State
97. The omission ofniche products from With respect to the review ofexisting and local officials in the development of he n in e ao ddeed regulations and the promulgation of regulatory policies that have federalism the coJanuary22 final rule alsoaressed new regulations, Section 3(a) of implications. DOEpublished its

pthe

concern expressed by the v Executive Order 12988, "Civil Justice intergovernmental consultation policy 

### Department ofJustice about the impact Reform," 61 FR 4729 (February 7, 1996), on March 14, 2000. 65 FR 13735. DOE ofthe October 5, 2000, proposed rule on imposes on Executive agencies the has examined today's rule and has small manufacturers (seepreamble to general duty to adhere to the following determined that it would not have a January 22 final rule at 66 FR 7192). requirements: (1)Eliminate drafting substantial direct effect on the States, on Because thefinal rule excluded most errors and ambiguity; (2)write therelationship between the national products made by small manufacturers, regulations to minimize litigation; and government and the States, or on the DOE affirmed its certification. (3) provide a clear legal standard for distribution of power and

Today DOE publishes energy affected conduct rather than a general responsibilities among the various conservation standards for central air standard and promote simplification levels ofgovernment. Stateregulations conditioners and heat pumps that and burden reduction. With regard to that may have existed on the products correspond to Trial Standard Level 2. the review required by section 3(a), that are the subject oftoday's rule were Primarily because ofsevere size section 3(b) ofExecutive Order 12988 preempted by the Federal standards constraints, DOE is establishing separate specifically requires that Executive established in NAECA. As discussed in product classes for through-the-wall agencies make every reasonable effort to Section VI.H.3, States can petition DOE duct classes fr through-theensure that the regulation: (1)Clearly for exemption from such preemption to equipment and small duct, high velocity specifies the preemptive effect, ifany; the extent, and based on criteria, set systems, which will berequired to meet (2) clearly specifies anyeffect on forth in section 327 ofEPCA (42 U.S.C.

a lower SEER and HSPF. In light of existing Federal law or regulation; (3) 6297). these product class exceptions and after provides a clear legal standard for H. 

### Review Underthe Unfunded considering the information in the TSD affected conduct while promoting MandatesReform Act of1995 and public comments, including the simplification and burden reduction; (4)r co roo regulatr views ofthe Department ofJustice (see 

### specifies the retroactive effect, ifany; (5) With respect to a proposed regulatory October 19, 2001, letter in the Appendix adequately defines key terms; and (6) action that mayresult in the
to this notice), DOE has concluded that addresses other important issues expenditure by State, local and tribal the 12 SEER standards in today's final affecting clarity and general governments, in the aggregate, or bythe rule will not have a disproportionate draftsmanship under any guidelines private sector of$100 million or more, adverse impact on a substantial number issued by the Attorney General. Section section 202 ofthe Unfunded Mandates ofsmall entities. In its comments, the 3(c) ofExecutive Order 12988 requires Reform Act of 1995 (UMRA) requires Office ofAdvocacy ofthe U.S. Small Executive agencies to review regulations Federal agency to publish estimates of Business Administration stated that the in light ofapplicable standards in the resulting costs, benefits and other proposed 12 SEER standard would section 3(a) and section 3(b) to effes on te natnal nomy. substantially improve energy efficiency determine whether they are met or it is U.S.C.1532(a), (b) UMRA also requires
whinnovatina job de for, them.DOE reviewed today's rule under effective process to permit timely input innovation andjobs, and,therefore, it the standards ofsection 3ofte by state, local, and tribal governments strongly supports the 12 SEER standard. Executive Order and determined that, to on aproposed significant On this basis, DOE certifies that today's the extent permitted by law, this rule intergovernmental mandate. DOE's rule will not have a significant impact meets the relevant standards. consultation process is described in a

on a substantial number ofsmall notice published in the Federal Register
entities. Accordingly, DOE has not F. Review Under Executive Order12630 on March 18,1997. 62 FR 12820. 

### prepared a regulatory flexibility DOE has determined pursuant to Today's rule will impose expenditures analysis. Executive Order 12630, "Governmental of$100 million or more on the private

DOE's certification is based on an Actions and Interference with sector. It does not contain aFederal
assessment ofthe impact the standards Constitutionally Protected Property intergovernmental mandate. will have on small entities that would Rights," 52 FR 8859 (March 18, 1988), Section 202 ofUMRA authorizes an be directly affected by their u thatthis rule will not result in any agency torespond to the content be dimplementation, which is the takings that might require compensation requirements ofUMRA in any other implementation, which is all the underthe Fifth Amendment to the statement or analysis that accompanies RegulatoryFlexibilit Act requires. The United States Constitution. the proposed rule. 2U.S.C. 1532(c). The assertion by ARI, in its petition for content requirements ofsection 202(b) consideration (ARI, No. 138, at section G.Review Under Executive Order13132 ofUMRA relevant to a private sector m), that DOE isrequired to assess the Executive Order 13132, "Federalism," mandate substantially overlap the indirect effects ofproposed standards is 64 FR43255 (August4, 1999) imposes economic analysis requirements that contrary to established case law certain requirements on agencies apply under section 325(o) ofEPCA and interpreting theAct. formulating and implementing policies Executive Order 12866. The "Regulatory 

## EE-RM/STD-98-440-**~Lf** 

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manufacturers. See 65 FR 59609-11. In the preamble to theJanuary 22 final rule, DOE addressed comments regardingthe impacts more stringent standards mighthave ontheavailability ofnicheproducts, and althoughthe final rule adopted thehigherTrial StandardLevel 4 standards, DOE deferred setting anamended standard for niche products. 66 FR 7175, 7196- 97. The omission ofniche products from theJanuary 22 final rule also addressed the concern expressedbythe Department ofJustice aboutthe impact ofthe October 5,2000,proposedrule on small manufacturers (see preambleto January 22 final rule at 66 FR 7192). Becausethe final rule excluded most products madeby small manufacturers, DOE affirmed its certification.

Today DOE publishes energy conservation standards for central air conditioners andheatpumpsthat correspondto Trial Standard Level 2. Primarilybecause ofsevere size constraints, DOE is establishing separate product classes for through-the-wall equipment and small duct, highvelocity systems, which willberequired to meet
a lower SEER and HSPF. In light of these product class exceptions and after consideringthe information inthe TSD and public comments, includingthe views oftheDepartment ofJustice (see October 19, 2001, letterinthe Appendix to this notice), DOE has concludedthat the 12 SEER standards intoday's final rule will nothave a disproportionate adverse impact ona substantial number ofsmall entities. In its comments, the Office ofAdvocacy ofthe U.S. Small BusinessAdministration statedthatthe proposed 12 SEER standardwould substantially improve energy efficiency while preservingcompetition, innovation andjobs, and, therefore, it strongly supports the 12 SEER standard. On this basis, DOE certifies thattoday's rule will not have a significant impact

on a substantial number ofsmall entities. Accordingly, DOE hasnot prepared a regulatory flexibility analysis.

DOE's certification isbased onan assessment ofthe impactthe standards will have on small entitiesthatwould be directly affected by their implementation, which is all the Regulatory FlexibilityAct requires. The assertionbyARl, in its petition for consideration (ARl, No. 138, at section m), thatDOE is requiredtoassess the indirect effects ofproposed standards is contrary to established case law interpretingtheAct. D. Review UnderthePaperwork ReductionAct

No new information orrecord keeping requirements are imposedbythis rulemaking. Accordingly, no Office of Management and Budget clearance is required underthePaperwork Reduction Act. 44 U.S.C. 3501 et

### seq. E. Review UnderExecutive Order 12988

Withrespect to the review ofexisting regulations andthe promulgation of

newregulations, Section 3(a) of Executive Order 12988, "Civil Justice Reform," 61 FR 4729 (February 7,1996), imposes on Executive agencies the general dutyto adhere to the follOWing requirements: (1) Eliminate drafting

errors and ambiguity; (2) write regulationstominimize litigation; and (3) provide a clearlegal standard for affected conductratherthan a general standard and promote Simplification andburdenreduction. Withregard to thereviewrequired by section 3(a), section 3(b) ofExecutive Order 12988 speCifically requires that Executive agencies·make every reasonable effort to
ensure thatthe regulation: (1) Clearly specifies the preemptive effect, ifany; (2) clearly specifies anyeffect on existingFederal law orregulation; (3) provides a clearlegal standard for affected conductwhile promoting Simplification andburdenreduction; (4) specifies the retroactive effect, ifany; (5) adequately defines key terms; and (6) addresses otherimportant issues affecting clarity andgeneral draftsmanship underany guidelines issuedby theAttorney General. Section 3(c) ofExecutive Order 12988 requires Executive agencies to review regulations inlight ofapplicable standards in section 3(a) and section 3(b) to determine whetherthey are met oritis unreasonable to meet one or more of them. DOE reviewed today's ruleunder the standards ofsection 3 ofthe Executive Order and determinedthat, to the extentpermittedby law, this rule meets the relevant standards.
F. Review UnderExecutive Order 12630

DOE has determined pursuantto Executive Order 12630, "Governmental Actions and Interference with ConstitutionallyProtected Property Rights," 52 FR 8859 (March 18,1988), thatthisrulewill notresult in any takings thatmightrequire compensation underthe Fifth Amendmentto the United States Constitution. 

### G. Review UnderExecutive Order 13132

Executive Order 13132, "Federalism," 64 FR43255 (August 4, 1999) imposes certainrequirements onagencies formulating and implementing policies orregulations that preempt State law or thathave federalism implications. Agencies are required to examine the constitutional and statutory authority supportingany action that would limit thepolicymaking discretion ofthe States and carefully assess the necessity for such actions. Agencies also must have an accountable process to ensure meaningful andtimely inputby State and local officials inthe development of regulatory policies that have federalism implications. DOE published its intergovernmental consultationpolicy

onMarch 14, 2000. 65 FR 13735. DOE has examinedtoday's rule and has determinedthat itwould not have a substantial direct effect onthe States, on the relationship between the national government and the States. or onthe distribution ofpower and responsibilities among the various levels ofgovernment. State regulations that may have existed onthe products that are the subject ohoday's rule were preemptedby the Federal standards established in NAECA. As discussed in Section VI.H.3, States can petition DOE for exemption from suchpreemption to the extent, andbased on criteria. set forth in section 327 ofEPCA (42 U.S.C. 6297).
H. Review Under the Unfunded Mandates ReformActof1995

With respectto a proposed regulatory action that may result in the expenditure by State, local and tribal governments. in the aggregate. or by the private sector of$100 million or more, section 202 ofthe Unfunded Mandates Reform Act of 1995 (UMRA) requires a Federal agencyto publish estimates of the resulting costs, benefits and other effects onthenational economy. 2 U.S.C. 1532(a), (b). UMRA also requires each Federal agency to develop an effectiveprocesstopermittimely input by state, local, andtribal governments
on a proposed significant intergovernmental mandate. DOE's consultation process is described in a notice publishedinthe FederalR.egister

on March 18. 1997. 62 FR 12820. Today's rulewill impose expenditures of$100 million ormore onthe private sector. Itdoes not contain a Federal intergovernmental mandate.

Section 202 ofUMRA authorizes an agency to respondto the content requirements ofUMRA in any other statement oranalysis that accompanies the proposed rule. 2 U.S.C. 1532(c). The contentrequirements ofsection 202(b) ofUMRA relevantto a private sector mandate substantially overlap the economic analysis requirements that apply under section 325(0) ofEPCA and Executive Order 12866. The "Regulatory

## EE-RM/STD-98-440-3oq
Federal Register/Vol. 67, No. 100/Thursday, May 23, 2002/Rules and Regulations 36405

Impact Analysis" section ofthe TSD for any proposed significant energy action, considered and not just avoided this rule responds to those theagency mustgive a detailed electricity costs. DOE has set forth its requirements. statement ofany adverse effects on evaluation of costs and benefits

Under section 205 ofUMRA, DOE is energy supply, distribution, oruse elsewhere in this notice (see Section obligated to identify and consider a should the proposed action be VII). DOE has also considered various reasonable number ofregulatory implemented, and ofreasonable regulatory and non-regulatory alternatives before promulgating arule alternatives tothe action andtheir alternatives totoday's proposed for which a written statement under expected benefits on energy supply, standard (seeSection VIII.B., "Review section 202 is required. DOE is required distribution, and use. UnderExecutive Order 12866," and the to select from those alternatives the Today's rule would not have any Regulatory Impact Analysis portion of most cost-effective and least adverse effects on the supply, the TSD). DOE has concluded that the burdensome alternative that achieves distribution, oruse ofenergy inthe near costs associated with elevating the the objectives ofthe rule unless DOE term because it would not have any current standard to the standard level publishes an explanation for doing effect on the manufacture ofcentral air set forth in the January 22, 2001, final otherwise orthe selection ofsuch an conditioners and heat pumps until rule exceed the associated benefits, alternative is inconsistent with law. As 2006. In the longerterm, beginning in including thebenefit ofavoided required by section 325(o) ofthe Energy 2006, the standards in this rule would electricity consumption. Policy and Conservation Act (42 U.S.C. have a small positive impact on the l 

### 295(o)), today's rule would establish electricity supply inthe United States. K. Congressional Notification

elergy conservation standards for The standards that DOE is adopting As required by 5U.S.C. 801, DOE will ctntral air conditioners and heat pumps would represent a 20 percent submit to Congress a report regarding that are designed to achieve the improvement in the energy efficiency of the issuance oftoday's final rule prior maximum improvement in energy split-system central airconditioners, to the effective date set forth at the effi,:iency thatDOE has determined to and a9 percent improvement in heating outsetofthis notice. DOE also will be both technologically feasible and efficiency for heat pumps. The submit the supporting analyses to the

ecor omically justified. A full discussion standards would improve the cooling Comptroller General (GAO) and make ofth,. alternatives considered by DOE is efficiency ofsingle-package heat pumps them available to each House of pres..nted in the "Regulatory Impact by 24 percent and the heating efficiency Congress. The report will state that it Anal) sis" section oftheTSD for today's ofsingle-package heat pumps by 12 has been determined that the rule is a .:ule. percent.

. ul eUnde theTrasyandAs 

### explained in Section VII ofthis major rule" as defined by 5U.S.C. I. arview Underthe Treasuryand Supplementary Information, DOE 804(2). 

### GeneralGovernmentAppropriations estimates the standards would save List ofSubjects in 10 CFRPart 430 Act, 1999 approximately 3quads ofenergy over 25

Section 654 ofthe Treasury and years (2006 through 2030). Also, in Administrative practice and General Government Appropriations determining whether these standards procedure, Energy conservation, Act, 1999 (Pub. L. No. 105-277) requires are economically justified, DOE Household appliances. Federal agencies to issue a Family considered as abenefit the potential of Issued inWashington, D.C., onMay 14, Policymaking Assessment for any the standards to improve the reliability 2002. proposed rule or policy thatmay affect oftheelectric generation and David K. Garman, family well-being. Today's rule would distribution system orto reduce the AssistantSecretary,EnergyEfficiencyand not have any impact on the autonomy environmental impacts associated with RenewableEnergy.

or integrity ofthe family as an new power plants andtransmission institution. Accordingly, DOE didnot lines. See Section VI.G. ofthis For the reasons set forth in the prepare a Family Policymaking Supplementary Information. DOE's preamble, Part 430 ofChapter II ofTitle Assessment. analysis predicts today's standards 10, Code ofFederal Regulations is wouldresult in anestimated reduction amended, as set forth below. J. Review UnderExecutiveOrder13211 in installed generation capacity in the PART 430-ENERGY CONSERVAON

Executive Order 13211, "Actions ^l year 2020 of approximately 8.7 PR G CONS ER Concerning Regulations That gigawatts. This wouldbe the equivalent PROGRAM FOR CONSUME Significantly Affect Energy Supply, of three 400 megawatt coal-fired plants PRODUCTS Distribution, orUse," (66 FR 28355, and nineteen 400megawatt gas-fired athrititatin fr Part 430 May 22, 2001) requires Federal agencies plants1.utorit itationfor t to prepare and submit to the Office of DOEdisagrees with the NRDC's view continues to read as follows: Information andRegulatory Affairs that the levels in the January 22 final Authority: 42U.S.C. 6291-6309; 28 U.S.C. (OIRA), Office ofManagement and rule are the appropriate baseline for 2461 note. Budget, a Statement ofEnergy Effects for determining whether today's rule is 2. The final rule amendg 10 CFR any significant energy action. A likely to have a significant adverse effect published January 22 2001 (66 "significant energy action" is defined as on the supply, istribution, d oruse of pt 40 ishedanar(66 any action by an agency that energy and, thus, subject tothe promulgates oris expected to lead to the Executive Order's analysisrequirement. 3.Section 430.2 is amended by promulgation ofa final rule, and that: (NRDC, No. 250 at p. 9). Forreasons adding definitions for "effective date," (1)Is a significant regulatory action stated in SectionHI, we think the proper "maximum allowable energy use," under Executive Order 12866, or any baseline is the currently effective "maximum allowable water use,"

successor order; and (2)is likely to have standards (i.e., the standards prescribed "minimum required energy efficiency,"

a significant adverse effect on the by NAECA). In any case, section 325 of "small duct, high velocity system," and supply, distribution, or useofenergy; or EPCA requires DOE to weigh all ofthe "through-the-wall air conditioner and (3)is designated by the Administrator of significant costs and benefits associated heat pump" in alphabetical order to OIRA as a significant energy action. For with standard levelsthat are being read as follows:

### EE.RM/STD.98.440-~q Federal Register/Vol. 67, No. 100/Thursday, May 23, 2002/Rules and Regulations 36405

Impact Analysis" section oftheTSD for this rule respondsto those requirements.

Under section 205 

### ofUMRA,

### DOE is obligatedto identify andconsidera reasonable number ofregulatory alternatives before promulgating arule for which a written statement under section 202 

### is required. DOE is required to select from those alternativesthe most cost-effective andleast burdensome alternativethat achieves the objectives oftherule unless DOE publishes an explanation for doing otherwise orthe selection ofsuch an alternative is inconsistent with law. As required by section 325(0) 

### oftheEnergy Policy and ConservationAct (42 

### U.S.C. l 295(0)), 

### today's rule wouldestablish e.lergy conservation standards for
Ct

### ntral air conditioners andheatpumps**th~\t** 

### are desi.sned to achieve the maximum improvement inenergy**el'fi,~iency** 

### thatDOE has determined to be bothtechnologically feasible and
ecm ')micallyjustified. A full discussion ofth.' alternatives consideredbyDOE is prest-.Gted inthe "RegulatoryImpact Anal)sis" section oftheTSD for today's**~"Ule.** 1. 

### nalliew Under the Treasuryand General GovernmentAppropriations 

### Act, 1999



### Section 654 

### oftheTreasury and General Government Appropriations Act, 1999 

### (Pub. L. 

### No. 105-277)

### requires Federal agencies to issue a Family PolicymakingAssessment for any proposed rule orpolicythatmay affect family well-being. Today'srule would not have any impact onthe autonomy
or integrity ofthefamily as an institution. Accordingly, DOE didnot prepare a Family Policymaking Assessment. 

### J. Review UnderExecutive Order 13211



### Executive Order 13211, 

### "Actions Concerning RegulationsThat Significantly Affect Energy Supply, Distribution, orUse," (66 

### FR 28355, 

### May 22, 2001)

### requires Federal agencies to prepare and submit to the Office of Infornlation andRegulatory Affairs (OIRA), Office ofManagement and Budget, a Statement ofEnergy Effects for any significantenergy action. A "significant energy action" is defined as any actionby anagency that promulgates oris expectedto leadtothe promulgation ofa final rule, andthat: (1) 

### Is a significantregulatory action underExecutive Order 12866,

### orany successororder; and (2) is likely to have

a significant adverse effect on the supply, distribution, oruse ofenergy; or (3) is designatedby the Administrator of OIRA as a significant energy action. For any proposed significant energy action, the agency mustgive a detailed statement ofany adverse effects on energy supply, distribution, oruse shouldthe proposed actionbe implemented, and ofreasonable alternatives to the action andtheir expectedbenefits on energy supply, distribution, anduse.

Today'srule would nothave any adverse effects onthe supply, distribution, oruse ofenergy inthenear termbecause it

### would not have any effect onthe manufacture ofcentral air 

### conditioners andheatpumpsuntil 2006. 

### Inthe longerterm, beginning in 2006,

### the standards inthisrule would have a small positive impact onthe electricity supplyinthe United States. The standardsthat DOE is adopting wouldrepresent a 20 

### percent improvement inthe energy efficiency of split-system central air conditioners, and a 9 

### percent improvement in heating effiCiency for heatpumps. The standards would improvethe cooling efficiency ofsingle-package heat pumps by 24 

### percent and the heating efficiency ofsingle-package heatpumpsby 12 

### percent.

As explained in Section

### vn ofthis SupplementaryInformation, DOE estimates the standards would save approximately 3 

### quads ofenergy over 25 

### years (2006 

### through 2030). 

### Also, in determining whether these standards

are economicallyjustified, DOE considered as a benefit the potential of the standardsto improve thereliability oftheelectric generation and distribution system orto reducethe environmental impacts associated with

new powerplants and transmission lines. See Section VI.G. ofthis SupplementaryInformation. DOE's analysis predicts today's standards wouldresult in an estimatedreduction ininstalledgeneration capacity inthe year 2020

### ofapproximately 8.7 

### gigawatts. This wouldbethe equivalent ofthree 400

### megawatt coal-firedplants and nineteen 400

### megawatt gas-fired plants.

DOE disagrees withthe NRDC's view thatthe levels inthe January 22 

### final rule are the appropriate baseline for determining whethertoday'srule is likelyto have a significant adverse effect

onthe supply, distribution, oruse of energy and, thus, subject to the Executive Order's analysis requirement. (NRDC, No. 250 

### at p. 9). 

### Forreasons stated in Section

## m, we thinkthe proper baseline is thecurrently effective standards (i.e., 

### the standards prescribed by NAECA). In anycase, section 325 

### of EPCA requires DOE to weigh all ofthe significantcosts andbenefits associated with standard levels that are being considered and notjust avoided electricity costs. DOE has set forth its evaluation ofcosts andbenefits elsewhere inthis notice (see 

### Section 

### vn). DOE has also considered various regulatory and non-regulatory alternatives to today's proposed standard (see 

### Section VIII.B., "Review UnderExecutive Order 12866,"

### andthe Regulatory Impact Analysis portion of theTSD). DOE has concluded that the costs associated with elevatingthe current standardto the standard level set forth in theJanuary 22, 2001, 

### final rule exceed the associated benefits, includingthebenefit ofavoided electricity consumption.
K. CongressionalNotification



### As required by 5 

### U.S.C. 801,

### DOE will submitto Congress a report regarding the issuance oftoday's final rule prior to the effective date set forth at the outsetofthis notice. DOE also will submit the supporting analyses to the Comptroller General (GAO) and make them available to each House of Congress. The report will state that it 

### has been determined that the rule is a "majorrule" as definedby 5 

### U.S.C. 804(2).
List

### ofSubjects in 10

### CFRPart430



### Administrative practice and procedure, Energy conservation. Household appliances.

Issued inWashington. D.C.• 

### on May 14. 2002. David K. Garman. Assistant Secretary. EnergyEfficiencyand RenewableEnergy.



### Forthe reasons set forth in the preamble. Part 430 

### ofChapter II ofTitle 10. 

### Code ofFederal Regulations is amended, as set forth below.

PART 43O-ENERGY CONSERVATION PROGRAM FOR CONSUMER PRODUCTS

1.

### The authority citation for Part 430 

### continues to read as follows:

Authority: 42 U.S.C. 6291-6309; 28 U.S.C. 2461 

### note.

2. Thefinal rule amending 10

### CFR part 430 

### publishedJanuary 22, 2001 (66 

### FR 7170) 

### is withdrawn.

3. 

### Section430.2 

### is amendedby adding definitions for "effective date." "maximum allowable energy use." "maximum allowable wateruse." "minimumrequired energy efficiency." "small duct, high velocity system," and "through-the-wall air conditioner and heat pump" in alphabetical orderto read as follows:

## EE-R M/STD-98-440' 50 L

36406 Federal Register/Vol. 67, No. 100/Thursday, May 23, 2002/Rules and Regulations

§430.2 Definitions. conditioner or heat pump that is Seasonal Heating * * * * * designed to be installed totally or energy effi- seasonal

Effective datemeans the date on and partially within a fixed-size opening in Product class ciency perform- ratio ancefactor after which a manufacturer must an exterior wall, and:(SEER) (HSPF) comply with an energy conservation (1) Is manufactured prior toJanuary standard in the manufacture ofa 23, 2010; (iv)Single package covered product. (2) Is not weatherized; heat pumps

....... 12 7.4

* * * * * (3) Is clearly and permanently marked (v)(A) Through-theMaximum allowableenergy use for installation only through an exterior wall air condimeans an energy conservation standard wall; tioners and heat for a covered product, expressed in (4) Has a rated cooling capacity no pumps-split
terms ofa maximum amount ofenergy greater than 30,000 Btu/hr; system10.9 7.1 (v)(B) Through-thethat may be consumed, which is (5) Exchanges all of its outdoor air wall air condiestablished by statute or by a final rule across a single surface ofthe equipment tioners and heat that has modified this part pursuant to cabinet; and pumps-single

a date DOE has selected consistent with (6) Has a combined outdoor air package

............. 10.6 7.0 the Congressional Review Act (5U.S.C. exchange area of less than 800 square (vi) Small duct, 801-804) ,nd any other applicable law, inches (split systems) or less than 1,210 high velocity sysor the date on w] ich DOE completes square inches (single packaged systems) tems

............ 100 6.8 action on ny tim.ly-initiated as measured on the surface described in NAECA-prescribed value subject to administra ive rec rnsideration, paragraph (5)ofthis definition. amendment. whichever ' later. * * * * * * * 

## ~~~~* * * * 

## ~6. Section 430.32 of Subpart C is 5. Section 430.34 is added to Subpart Maximum allowalewaterusemeans amended by revising paragraph (c) to C to read as follows:

an energy conservetion standard for a read as follows: covered product, ext -essed in terms of 430.34 Energyandwateronservation

a maximum amount cfwater that may §430.32 Energy and water conservation standards amendments be consumed, which sestablished by standardsand effective dates. The Department ofEnergy may not

statute or by a final rule that has * * prescribe any amended standard which
modified this pait pursuant to a date (c) Centralairconditionersand increases the maximum allowable DOE has selected consistent with the centralairconditioningheatpumps. (1) energy use or, in the case of Congressional Review Act (5 U.S.C. Split system central air conditioners and showerheads, faucets, water closets or 801-804) and any other applicable law, central air conditioning heat pumps urinals, the maximum allowable water

or the date on which DOE completes manufactured after January 1, 1992, and use, or which decreases the minimum
action on any timely-initiated before January 23, 2006
,and single required energy efficiency of a covered
administrative reconsideration, package central air conditioners and product. whichever is later. central air conditioning heat pumps Appendix

* * * * * manufactured after January 1, 1993, and
Minimum requiredenergyefficiency before January 23, 2006
,shall have [The following letters from Department of

means an energy conservation standard Seasonal Energy Efficiency Ratio and ustice will not appear the Code of Fedeal for a covered product, expressed in Heating Seasonal Performance Factor no Regatons.]

terms ofa minimum efficiency quotient, less than: Department ofJustice which is established by statute or by a Antitrust Division final rule that has modified this part Seasonal Heating A. Douglas Melamed pursuant to a date DOE has selected Product class energy effi- seasonal ActingAssistantAttorney General.Main 

### clency perform- JusticeBuilding,950 Pennsylvania consistent with the Congressional ratio ance factor AvenueNW., Washington, DC20530- Review Act (5 U.S.C. 801-804) and any 000, (202) 514-2401/(202) 616-2645 (f), other applicable law, or the date on (i)Split systems

.... 10.0 6.8 antitrust@justice.usdoj.gov (internet), which DOE completes action on any (ii)Single package http://www.usdoj.gov(World Wide Web) timely-initiated administrative systems

............. 6.6 December 4, 2000. reconsideration, whichever is later. whichever is later.()entral air conditioners and MaryAnne Sullivan, GeneralCounsel *Small duct, high velocity systm central air conditioning heat pumps Department ofEnergy Small duct, high velocity system manufactured on or after January 23, Washington, D.C. 20585

means a heating and cooling product 2006
,shall have Seasonal Energy Dear General Counsel Sullivan: Iam that contains a blower and indoor coil Efficiency Ratio and Heating Seasonal responding to your October 16, 2000 letter combination that: Perfrmance Factor no less than:seeking the views ofthe Attorney General

(1) Is designed for, and produces, at about the potential impact on competition of least 1.2 inches ofexternal staticSeasonal Heatin two proposed energy efficiency standards:
pressure when operated at the certified energy effi- seasonal one for clothes washers and the other for air volume rate of220-350 CFM per Product class ciency perform- residential central air conditioners and heat rated ton ofcooling; and ratio ance factor pumps. Your request was submitted pursuant (2) When applied in the field, uses (SEER) (HSPF) to Section 325(o)(2)(B)(i) ofthe Energy Policy high velocity room outlets generally ues-----and Conservation Act, 42 U.S.C. 6291, 6295 high velocity room outwelets generally (i)Split system air ("EPCA"), which requires the Attorney greater than 1000 fpm which have less conditioners....... 12

- General tomake a determination ofthe than 6.0 square inches offree area. (ii)Split system impact ofany lessening ofcompetition that * * * * * heat pumps

....... 12 7.4 islikely toresult from the imposition of

Through-the-wallairconditioner and (iii) Single package proposed energy efficiency standards. The heat pump means a central air air conditioners

.. 12

- Attorney General's responsibility for 

### 36406**EE-RM/STD-98·44().-~Lf** 

### Federal Register/Vol. 67, No. 100/Thursday, May 23, 2002/Rules and Regulations

§430.2 Definitions. * * * * *



### Effective date means the date on and after which a manufacturer must comply with an energy conservation standard in the manufacture ofa covered product. * 

### * * *



### Maximum allowable energy use means an energy conservation standard for a covered product, expressed in terms ofa maximum amount ofenergy that maybe consumed, which is establishedby statute orby a final rule that has modified this partpursuantto
a date DOE has selected consistent with the Congressional Review Act (5 U.S.C. 801-804) :.nd any other applicable law.

orthe dati on wiich DOE completes action on , ny timAy-initiated administraive fl'C msideration, whichever 'f. late.". * * *



### MaximUI.1 '1llowa;Jle water use means
an energy**c()merv~'tloJn** standard for a covered produ:t, ex£. -essed in terms of

a maximum amoum l 

## rwaterthat may be consumed, which 1, established by statute or by a fbal rule that has modified this PaIt purl;uantto a date DOE has selected (;c;"lsistent withthe Congressional Review Act (5 U.S.C. 801-804) and any other applicable law,

orthe date on which DOE completes action on any timely-initiated administrative reconsideration, whichever is later. * * * * *



### Minimum required energy efficiency

means an energy conservation standard for a covered product, expressed in terms ofa minimum efficiency quotient, which is establishedby statute orby a final rule that has modified this part pursuantto a date DOE has selected consistent with the Congressional Review Act (5 U.S.c. 801-804) and any other applicable law, orthe date on which DOE completes action on any timely-initiated administrative reconsideration, whichever is later. * * * * 

### *

Smallduct, high velocitysystem
means a heating and cooling product that contains a blower and indoor coil combination that:

(1) Is designed for, and produces, at least 1.2 inches ofexternal static pressure when operated atthe certified air volume rate of220-350 CFM per rated ton ofcooling; and

(2) When applied in the field, uses high velocity room outlets generally greater than 1000 fpm which have less than 6.0 square inches offree area. * * * * *



### Through-the-wall airconditionerand heatpump means a central air conditioner or heat pump that is designed to be installed totally or partially within a fixed-size opening in

an exterior wall, and:

(1) Is manufactured priorto January 23,2010;

(2) Is not weatherized; (3) Is clearly and permanently marked for installation only through an exterior wall;

(4) Has a rated cooling capacity no greater than 30,000Btu/hr;

(5) Exchanges all ofits outdoor air

across a single surface ofthe equipment cabinet; and

(6) Has a combined outdoorair exchange area ofless than 800 square inches (split systems) or less than 1,210 square inches (single packaged systems)

as measured on the surface described in paragraph (5) ofthis definition. * * * * *

6. Section 430.32 ofSubpart C is amended by revising paragraph (c) to read as follows: §430.32 Energy and water conservation standards and effective dates. * * * 

### * *

(c) 

### Central airconditioners and central air conditioningheatpumps. (1) Split system central air conditioners and central air conditioningheat pumps manufactured after January 1,1992, and before January 23, 2006
, and single package central air conditioners and central air conditioningheat pumps manufactured after January 1, 1993, and before January 23, 2006
, shall have Seasonal Energy Efficiency Ratio and Heating Seasonal Performance Factor no less than:

Product class

(i) Split systems

.... (ii) Single package

systems

............. Seasonal energyeffi-

ciency ratio

10.0

9.7 Heating seasonalperformance factor

6.8

6.6
(2) Central air conditioners and central air conditioningheat pumps manufactured on or after January 23, 2006
, shall have Seasonal Energy Efficiency Ratio and Heating Seasonal Performance Factor no less than:

Product class

(i) Split system air

conditioners

....... (ii) Split system

heat pumps

....... (iii) Single package

air conditioners

.. Seasonal energyeffi-

ciency ratio (SEER)

12

12

12 Heating seasonalperformance factor

(HSPF)

7.4 Product class

(iv) Single package

heat pumps

....... (v)(A) Through-thewall air conditioners and heat pumps-split system

............... (v)(B) Through-thewall air conditioners and heat pumps-single package

............. (vi) Small duct,

high velocity systems

.................. Seasonal energyeffi-

ciency ratio (SEER)

12

10.9

10.6

10.0

, NAECA-prescribed amendment. value

* * 

### * * * Heating seasonalperformance factor

(HSPF)

7.4

7.1

7.0

'6.8 subject to

5. Section 430.34 is added to Subpart Cto read as follows: §430.34 Energy and water conservation standards amendments

The Department ofEnergy may not prescribe any amended standard which increases the maximum allowable energy use or, in the case of showerheads, faucets, water closets or urinals, the maximum allowable water use, or which decreases the minimum required energy efficiency ofa covered product. Appendix

[The following letters from Department of Justice will not appear in the Code ofFederal Regulations.J Department ofJustice Antitrust Division A. Douglas Melamed ActingAssistantAttorney General, Main Justice Building, 950 Pennsylvania AvenueNW., Washington, DC20530- 0001, (202) 514-2401/(202) 616-2645 (j), antitrust@justice.usdoj.gov (internet), http://www.usdoj.gol'(World Wide Web) December 4, 2000.
MarvAnne Sullivan, General Counsel Department ofEnergy Washington, D.C. 20585

Dear General Counsel Sullivan: I am responding to your October 16, 2000 letter seeking the views ofthe Attorney General about the potential impact on competition of two proposed energy efficiency standards:

one for clothes washers and the other for residential central air conditioners and heat pumps. Your request was submitted pursuant to Section 325(0)(2)(B)(i) ofthe Energy Policy and Conservation Act, 42 U.S.c. 6291,6295 ("EPCA"), which requires the Attorney General to make a determination ofthe impact ofany lessening ofcompetition that is likely to result from the imposition of proposed energy efficiency standards. The Attorney General's responsibility for

## EE-RM/STD-98-440-~4
Federal Register/Vol. 67, No. 100/Thursday, May 23, 2002/Rules and Regulations 36407

responding to requests from other Second, the proposed standard for heat a 12 SEER standard for heat pumps. We departments about the effect ofa program on pumps, and in some instances for air noted only minor concerns about the competition has been delegated to the conditioners, would have an adverse impact proposed 12 SEER standard for air Assistant Attorney General for the Antitrust on some manufacturers ofthese products conditioners. Division in 28 CFR §0.40(g). (including those products referred to in the We have reviewed the final rule and

We have reviewed the proposed standards Federal Register notice as "niche products") determined that the 13 SEER heat pump and the supplementary information used to retrofit existing housing and used in standard still raises competitive problems. published in the Federal Register notices and manufactured housing. These manufacturers We have further determined that the 13 SEER submitted to the Attorney General, which could not make units that comply with the standard for air conditioners also raises include information provided to the rule and fit intothe available space. competitive concerns. Department ofEnergy by manufacturers. We Third, the proposed heat pump standard of In our earlier letter, we identified and have additionally conducted interviews with 13 SEER could make heat pumps less described three competitive problems members ofthe industries. competitive with alternative heating and resulting from the proposed 13 SEER

We have concluded that the proposed cooling systems. Because the standard will standard for heat pumps, including a clothes washer standard would not adversely result in increases in the size and cost ofheat disproportionate impact on smaller affect competition. In reaching this pumps, it is possible that purchasers will manufacturers Zand an adverse effect on conclusion, we note that the proposed shift away from heat pumps to other systems manufacturers of specialized equipment (the standard is based on a joint recommendation that include electric resistance heat, reducing niche product manufacturers) and submitted to the Department ofEnergy by the competition that presently exists between manufacturers of equipment for spacemanufacturers and energy co-.servat;on heat pumps and those other systems. constrained installation sites (such as advocates. That recommends ion sta.9s that Department ofJustice urges the Department manufactured housing, which accounts for a virtually all manufacturers oi clothes rashers ofEnergy to take into account these possible significant percentage ofthe country's who sell in the United States a-iiL.ipEted in impacts on competition in determining its housing starts). The exception made in the arriving at the recommendatic athrough their final energy efficiency standard for air final rule for niche product manufacturers trade association, that the rec( mimenda -ion conditioners and heat pumps. The may alleviate competitive problems for their

was developed in consultation vrith sin: 11 Department of Energy should consider setting products, but the exception does not manufacturers, and that the mhn. factir rs a lower SEER standard for heat pumps, such eliminate the difficulties for manufacturers of believe the new standard would sot lileiy as the standard included in Trial Standard standard equipment who could not make reduce competition. We note furt. er that as Level 2, and a lower SEER standard for air equipment that complied with the 13 SEER the industry recommended, the proposed conditioners for retrofit markets where there standard and still fit into space-constrained standard will be phased in over six years, are space constraints (such as markets served sites. The final rule also continues to have a which will allow companies that dc not by niche products) and for manufactured disproportionate impact on smaller already have products that meet the oroposed housing. manufacturers of heat pumps. The 13 SEER standard sufficient time to redesign their Sincerely, standard for air conditioners raises the same product lines. A. Douglas Melamed kinds ofcompetitive problems as the 13

With respect to the proposed residential SEER standard does for heat pumps. central air conditioner and heat pump Department of Justice We urge the Department of Energy to standard, we have concluded that there could Antitrust Division consider the impact on competition and to be an adverse impact on competition. The John M. Nannes adopt a 12 SEER standard for all products proposed standard, Trial Standard Level 3, is ActingAssistantAttorney General, covered by the rule. expressed in terms oftwo industry Main Justice Building, 950 Pennsylvania Sincerely,
measurements: SEER (Seasonal Energy Avenue NW., Washington, DC 20530- John M. Nannes Efficiency Ratio) and HSPF (Heating Seasonal 0001, (202) 514-2401/ (202) 616-2645 Department ofJustice Performance Factor).' These standards would (f), antitrust@justice.usdoj.gov (internet) change from the current central air http://www.usdoj.gov (World Wide Web)Antitrust Division conditioner and heat pump efficiency A pril 5, 2001. Charles A. James standards of 10 SEER/6.8 HSPF for split April 5, 2001. AssistantAttorney General, system air conditioners and heat pumps and Eric J. Fygi, Main Justice Building, 950 Pennsylvania 9.7 SEER/6.6 HPSF for single package air Acting GeneralCounsel,Departmentof Avenue, NW., Washington, DC 20530- conditioners and heat pumps to 12 SEER for Energy, Washington,DC20585 0001, (202) 514-2401 / (202) 616-2645 air conditioners and 13 SEER/7.7 HPSF for Dear Acting General Counsel Fygi: I am (f)antitrust@justice.usdoj.gov (internet) heat pumps. responding to your letter dated March 20, http://www.usdoj.gov (World Wide Web)

We have identified three possible 2001, seeking the views of the Attorney October 19, 2001 competitive problems presented by the General about the potential effect on Liberman Otis proposed standards. First, the proposed 13 competition ofthe final rule published onDepartment ofEnergy, SEER heat pump standard would have a January 22, 2001, setting forth new energy Washington,DC20585 disproportionate impact on smaller efficiency standards for central aireneral Counsel Otis: Iam manufacturers. Currently less than 20 percent conditioners and heat pumps. You ofthe total current product lines meet the specifically asked for our views about the responding to your August 15, 2001 letter proposed standards, but for some small impact on competition of the rule's seeking the views ofthe Attorney General manufacturers, 100 percent oftheir product prescription ofa 13 SEER (Seasonal Energy about the potential impact on competition of lines fail to satisfy the proposed standard. E proposed energy efficiency standards for classes, except for niche products, and the residential central air conditioning heat pumps. Your 'The Federal Register notice also requested desirability of reducing the standard to a 12 central air conditioning heat pumps. Your
comments on aproposal to adopt a standard for SEER level for all subcategories. Your letter request was submitted pursuant to Section steady-state cooling efficiency (EER) and discussed requested our views by March 30, but your 325()(2)(B)(i) of the Energy Plicy and several options the Department of Energy is ed extend the respConservation Act, 42 U.S.C. 6291, 6295 considering. The proposed rule set forth in the staffagreed to extend the response date to ("EPCA"), which requires the Attorney notice does not. however, include ap Aprovisil 6. General to make a determination ofthe regarding an EER standard, and the views of As you noted in your letter to the Attorney impact of any lessening of competition that Department ofJustice expressed in this letter are General, the Antitrust Division had earlier limitedto the impact ofany lessening of expressed its views on the proposed rule, competition ' * *that is likely to result from the which provided for a 12 SEER standard for tWe noted in ourprevious letter that less than imposition of the [proposed] standard," as required 20 percent of thetotal current heat pump product lines meet the new standard, but for some small by EPCA. If the Department of Energy proposes a heat pumps. The Division had concluded manufacturers, 100 percent of their product lines rule in the future incorporating an EER standard DOE will then evaluate that proposed rule and that the 13 SEER standard for heat pumps failed to satisfy the standard. The same is true for
express its views about the competitive impact of could have an adverse effect on competition airconditioner manufacturers when the standard is that standard. and urged the Department ofEnergy to adopt 13 SEER. 

### EE-RM/STO-9S-440-?Ptf Federal Register/VoL 67, No. 100/Thursday, May 23, 2002/Rules and Regulations 36407

responding to requests from other departments about the effect ofa program on competition has been delegated to the Assistant Attorney General for the Antitrust Division in 28 CFR §0.40(g).

We have reviewed the proposed standards and the supplementary information published in the Federal Register notices and submitted to the Attorney General. which include information providedto the Department ofEnergy by manufacturers. We have additionally conducted interviews with members ofthe industries.

We have concluded that the proposed clothes washer standard would not adversely affect competition. Inreaching this conclusion. we note that the proposed standard is based on ajoint recommendation submitted to the Department ofEnergy by manufacturers and energy co',servat;on advocates. That recommend, ion sta. gS that virtually all manufacturers 01 clothes lVashers who sell in the United States la:LiI..!jlned in arriving at the recommendatil :l throug.'! their trade association. that the reel Ilmemla'ion

was developed in consultation vTith sm: II manufacturers. and that the m&.n.lfactl'nrs believe the new standard would IIOt likely reduce competition. We note furtl.er th.lt as the industry recommended. the prnposed standard will be phased in over six years. which will allow companies that dc not already have products that meet the oroposed standard sufficient time to redesign L,eir product lines.

With respect to the proposed residential central air conditioner and heat pump standard. we have concluded that there could be an adverse impact on competition. The proposed standard. Trial Standard Level 3. is expressed in terms oftwo industry measurements: SEER (Seasonal Energy Efficiency Ratio) and HSPF (Heating Seasonal Performance Factor).' These standards would change from the current central air conditioner and heat pump efficiency standards of 10 SEER/6.8 HSPF for split system air conditioners and heat pumps and 9.7 SEERi6.6 HPSF for single package air conditioners and heat pumps to 12 SEER for air conditioners and 13 SEERI7.7 HPSF for heat pumps.

We have identified three possible competitive problems presented by the proposed standards. First. the proposed 13 SEER heat pump standard would have a disproportionate impact on smaller manufacturers. Currently less.than 20 percent ofthe total current product lines meet the proposed standards. but for some small manufacturers. 100 percent oftheir product lines fail to satisfy the proposed standard.

,The Federal Register notice also requested comments on a proposal to adopt a standard for steady-state cooling efficiency lEER) and discussed several options the Department ofEnergy is considering. The proposed rule set forth in the notice does not. however. include a provision regarding an EER standard. and the views of Department ofJustice expressed in this IeHer are limited to the impact ofany lessening of competition' • • that is likely to result from the imposition ofthe [proposed] standard." as required by EPCA. Ifthe Department ofEnergy proposes a rule in the future incorporating an EER standard. DOE will then evaluate that proposed rule and express its views about the competitive impact of that standard. Second. the proposed standard for heat pumps. and in some instances for air conditioners. would have an adverse impact

on some manufacturers ofthese products (including those products referred to in the Federal Register notice as "niche products") used to retrofit existing housing and used in manufactured housing. These manufacturers could not make units that comply with the rule and fit into the available space.

Third. the proposed heat pump standard of 13 SEER could make heat pumps less competitive with alternative heating and cooling systems. Because the standard will result in increases in the size and cost ofheat pumps. it is possible that purchasers will shift away from heat pumps to other systems that include electric resistance heat. reducing the competition that presently exists between heat pumps and those other systems.

Department ofJustice urges the Department ofEnergy to take into account these possible impacts on competition in determining its fmal energyefficiency standard for air conditioners and heat pumps. The Department ofEnergy should consider setting

a lower SEER standard for heat pumps. such

as the standard included in Trial Standard Level 2. and a lower SEER standard for air conditioners for retrofit markets where there

are space constraints (such as markets served by niche products) and for manufactured housing. Sincerely. A. Douglas Melamed Department ofJustice Antitrust Division John M. Nannes ActingAssistantAttorneyGeneral. Main Justice Building. 950 Pennsylvania Avenue NW

.. Washington. DC 20530- 0001. (202) 514-2401/(202)616-2645 (0. antitrust@justice.usdoj.gov (internet) http://www.usdoj.gov (World Wide Web) April 5. 2001. Eric J. Fygi, Acting General Counsel. Department of Energy. Washington. DC20585 Dear Acting General Counsel Fygi: I am responding to your letter dated March 20. 2001. seeking the views ofthe Attorney General about the potential effect on competition ofthe final rule published on January 22. 2001. setting forth new energy effiCiency standards for central air conditioners and heat pumps. You specifically asked for our views aboutthe impact on competition ofthe rule's prescription ofa 13 SEER (Seasonal Energy Efficiency Rating) standard for all product classes. except for niche products. and the desirability ofreducing the standard to a 12 SEER level for all subcategOries. Your letter requested our views by March 30. but your staffagreed to extend the response date to Apri16.

As you noted in your letter to the Attorney General. the Antitrust Division had earlier expressed its views on the proposed rule. which provided for a 12 SEER standard for air conditioners and a 13 SEER standard for heat pumps. The Division had concluded that the 13 SEER standard for heat pumps could have an adverse effect on competition and urged the Department ofEnergy to adopt a 12 SEER standard for heat pumps. We noted only minor concerns about the proposed 12 SEER standard for air conditioners.

We have reviewed the final rule and determined that the 13 SEER heat pump standard still raises competitive problems. We have further determined that the 13 SEER standard for air conditioners also raises competitive concerns.

In our earlier letter. we identified and described three competitive problems resulting from the proposed 13 SEER standard for heat pumps. including a disproportionate impact on smaller manufacturers 2 and an adverse effect on manufacturers ofspecialized equipment (the niche product manufacturers) and manufacturers ofequipment for spaceconstrained installation sites (such as manufactured housing. which accounts for a significant percentage ofthe country's housing starts). The exception made in the final rule for niche product manufacturers may alleviate competitive problems for their products. but the exception does not eliminate the difficulties for manufacturers of standard equipment who could not make equipment that complied with the 13 SEER standard and still fit into space-constrained sites. The final rule also continues to have a disproportionate impact on smaller manufacturers ofheat pumps. The 13 SEER standard for air conditioners raises the same kinds ofcompetitive problems as the 13 SEER standard does for heat pumps.

We urge the Department ofEnergy to consider the impact on competition and to adopt a 12 SEER standard for all products covered by the rule.

Sincerely. John M. Nannes Department ofJustice Antitrust Division Charles A. James AssistantAttorney General, Main Justice Building, 950 Pennsylvania Avenue. NW

.. Washington. DC 20530- 0001. (202) 514-2401 1(202) 616-2645 (0 antitrust@justice.usdoj.gov (internet) http://www.usdoj.gov (World Wide Web) October 19. 2001 Lee Liberman Otis. General Counsel. Department ofEnergy. Washington. DC20585 Dear General Counsel Otis: I am responding to your August 15. 2001 letter seeking the views ofthe Attorney General about the potential impact on competition of proposed energy efficiency standards for residential central air conditioners and central air conditioning heat pumps. Your request was submitted pursuant to Section 325(0)(2)(BHi) ofthe Energy Policy and Conservation Act. 42 U.S.c. 6291. 6295 ("EPCA"J. which requires the Attorney General to make a determination ofthe impact ofany lessening ofcompetition that

, We noted in our previous letter that less than 20 percent ofthe total current heat pump product lines meet the new standard. but for some small manufacturers. 100percent oftheir product lines failed to satisfy the standard. The same is true for air conditioner manufacturers when the standard is 13 SEER.

## EE-RM/STD-98-440-314

36408 Federal Register/Vol. 67, No. 100/Thursday, May 23, 2002/Rules and Regulations

is likely to result from the imposition of The proposal provides for 12 SEER DOE, as well as the results of our industry proposed energy efficiency standards. The standards for all types ofresidential central interviews. Based on that review, we have Attorney General's responsibility for air conditioners and central air conditioning concluded that the proposal would not responding to requests from other heat pumps, except those that are installed adversely affect competition. departments about the effect of a program on through an exterior wall. We have reviewed Sincerely, competition has been delegated to the the materials that accompanied your August Chares A James Assistant Attorney General for the Antitrust 15 letter, the materials that you previously [FR Doc. 02-12680 Filed 5-22-02; 8:45 am] Division in 28 CFR 0.40(g). provided, and the comments submitted to BILUNG CODE 6450--01-P 

### EE-RM/STD-9S-440-joLf
36408 

### Federal Register/Vol. 67, No. 100/Thursday, May 23, 2002/Rules and Regulations

is likely to result from the imposition of proposed energy efficiency standards. The Attorney General's responsibility for responding to requests from other departments about the effect ofa program on competition has been delegated to the Assistant Attorney General for the Antitrust Division in 28 CFR 0.40(g). The proposal provides for 12 SEER standards for all types ofresidential central air conditioners and central air conditioning heat pumps, except those that are installed through an exterior wall. We have reviewed the materials that accompanied your August 15 letter, the materials that you previously provided, and the comments submitted to DOE. as well as the results ofour industry interviews. Based on that review. we have concluded that the proposal would not adversely affect competition.

Sincerely, Charles A. James [FR Doc. 02-12680 Filed 5-22-02; 8:45 am)

BILUNG CODE**6450-01~**