GAO 

B-322279 

August 30, 2011 

The Honorable Jeff Bingaman 

Chairman 

The Honorable Lisa Murkowski 

Ranking Member 

Committee on Energy and Natural Resources 

United States Senate 

The Honorable Fred Upton 

Chairman 

The Honorable Henry A. Waxman 

Ranking Member 

Committee on Energy and Commerce 

House of Representatives 

Subject: Department of Energy: Energy Conservation Program: Energy 

Conservation Standards for Residential Furnaces and Residential Central 

Air Conditioners and Heat Pumps 

Pursuant to section 801 (a)(2)(A) of title 5, United States Code, this is our report on a 

major rule promulgated by the Department of Energy (DOE), entitled "Energy 

Conservation Program: Energy Conservation Standards for Residential Furnaces 

and Residential Central Air Conditioners and Heat Pumps" (RIN: 1904-AC06). We 

received the rule on August 16, 2011. It was published in the Federal Register as a 

direct final rule on June 27, 2011. 76 Fed. Reg. 37,408. The direct final rule will be 

effective on October 25, 2011, unless adverse comment is received by October 17, 

2011. 

The final rule adopts amended energy conservation standards for residential 

furnaces and for residential central air conditioners and heat pumps. DOE published 

a notice of proposed rulemaking that proposes identical energy efficiency standards 

in the Federal Register on the same day. DOE states that if it receives adverse 

comment and determines that such comment may provide a reasonable basis for 

withdrawing the direct final rule, this final rule will be withdrawn, and DOE will 

proceed with the proposed rule. 

GAO-11-884R 
Enclosed is our assessment of DOE's compliance with the procedural steps required 

by section 801(a)(1 )(8)(i) through (iv) of title 5 with respect to the rule. Our review of 

the procedural steps taken indicates that DOE complied with the applicable 

requirements. 

If you have any questions about this report or wish to contact GAO officials 

responsible for the evaluation work relating to the subject matter of the rule, please 

contact Shirley A. Jones, Assistant General Counsel, at (202) 512-8156. 

Robert J. Cramer 

Managing Associate General Counsel 

Enclosure 

cc: Daniel Cohen 

Assistant General Counsel for Legislation, 

Regulation and Energy Efficiency 

Department of Energy 

Page 2 GAO-11-884R 
ENCLOSURE 

REPORT UNDER 5 U.S.C. § 801(a)(2)(A) ON A MAJOR RULE 

ISSUED BY THE 

DEPARTMENT OF ENERGY 

ENTITLED 

"ENERGY CONSERVATION PROGRAM: 

ENERGY CONSERVATION STANDARDS FOR 

RESIDENTIAL FURNACES AND RESIDENTIAL 

CENTRAL AIR CONDITIONERS AND HEAT PUMPS" 

(RIN: 1904-AC06) 

(j) Cost-benefit analysis 

DOE prepared a cost-benefit analysis in conjunction with the direct final rule. DOE 

estimated that the economic impacts on individual consumers are generally 

positive, and estimated the average life-cycle cost (Lee) savings for consumers in 

various regions for each category of device covered under the direct final rule. For 

the standards in this rule on energy efficiency, DOE expects that manufacturers 

may lose 5.6 to 10.6 percent of their industry net present value (INPV), or 

approximately $0.48 billion to $0.90 billion. For the standards in this rule on 

standby mode and off mode power, DOE expects that manufacturers may lose up 

to 2.9 percent of their INPV, or approximately $0.25 billion. 

In determining the national benefits, DOE calculated the monetized value using a 7-

percent discount rate, and 3-percent discount rate. Using a 7-percent discount rate, 

DOE estimated that the cost of the standards in this rule is $527 million to $773 

million per year in increased equipment costs ($566 million to $825 per year using a 

3-percent discount rate), while the annualized benefits are $837 million to $1106 

million per year ($1289 million to $1686 million per year using a 3-percent discount 

rate) in reduced equipment operating costs, $140 million to $178 million ($140 

million to $178 million using a 3-percent discount rate) in eo, reductions, and $5.3 

million to $6.9 million ($7.9 million to $10.2 million using a 3-percent discount rate) 

in reduced NOx emissions. In this case, the net benefit amounts to $456 million to 

$517 million ($871 million to $1049 million per year using a 3-percent discount rate) 

per year. DOE also calculated annualized net benefits using a range of potential 

electricity and equipment price trend forecasts. Given the range of modeled price 

trends, the range of net benefits in this case is from $295 million to $623 million per 

year ($601 million to $1260 million per year using a 3-percent discount rate). The 

low estimate corresponds to a scenario with a low electricity price trend and a 

constant real price trend for equipment, while the high estimate reflects a high 

electricity price trend and a strong declining real price trend for equipment. 

GAO-"·884R 
(ii) Agency actions relevant to the Regulatory Flexibility Act, 5 U.S.C. §§ 603-605, 

607, and 609 

DOE prepared a final regulatory flexibility analysis in conjunction with the final rule 

in which it discussed the potential impacts on small residential furnace, central air 

conditioner, and heat pump manufacturers and alternatives that could minimize 

these impacts. DOE detenmined that there are only four domestic small business 

manufacturers of central air conditioning products, but none of the efficiency levels 

applicable to the products made by the small manufacturers are subject to change 

in the direct final rule. Therefore, DOE does not anticipate any adverse impacts on 

these manufacturers. DOE determined that there are five domestic small business 

manufacturers of residential fumace products, All of these small business 

manufacturers have product lines that meet the efficiency level adopted in the direct 

final rule, so DOE believes that the adopted standard level would be unlikely to 

cause the small manufacturer to incur significant conversion costs. 

(iii) Agency actions relevant to sections 202-205 of the Unfunded Mandates Reform 

Act of 1995, 2 U.S.C. §§ 1532-1535 

DOE determined that the final rule will not result in the expenditure of more than 

$100 million or more in any given year by state, local, or tribal governments. DOE 

detenmined that the direct final rule may impose expenditures of more than $100 

million on the private sector and that such expenditures may include investment in 

research and development and in capital expenditures by furnace, central air 

conditioner, and heat pump manufacturers in the years between the final rule and 

the compliance date for the new standards, and incremental additional expenditures 

by consumers to purchase higher-efficiency furnace, central air conditioner, and 

heat pump products starting at the compliance date for the applicable standard. 

(jv) Other relevant information or requirements under acts and executive orders 

Administrative Procedure Act, 5 U.S.C. §§ 551 et seg. 

The Administrative Procedure Act generally requires an agency to issue a notice of 

proposed rulemaking and an opportunity for public comment. However, the Energy 

Policy and Conservation Act of 1975 (EPCA), as amended by the Energy 

Independence and Security Act of 2007 (EISA 2007), and codified at 42 U.S.C. 

6295(p)(4), grants DOE the authority to issue a direct final rule establishing an 

energy conservation standard on receipt of a statement submitted jointly by 

interested persons that are fairly representative of relevant pOints of view. DOE 

used this authority in issuing the direct final rule, and also, as required under EPCA, 

published simultaneously with the direct final rule a notice of proposed rulemaking 

with identical energy standards and provided a public comment period of at least 

110 days. 76 Fed. Reg. 37,549. If by October 17, 2011, DOE has received one or 

more adverse comments or an alternative joint recommendation relating to the 

Page 2 GAO-11-884R 
direct final rule, DOE will need to determine whether the comments provide a 

reasonable basis for withdrawal, and if so, DOE must withdraw the direct final rule 

and proceed with the simultaneously published proposed rulemaking. DOE is 

required to publish in the Federal Register the reason why a direct final rule was 

withdrawn. 

Paperwork Reduction Act, 44 U.S.C. §§ 3501-3520 

The final rule contains collection of information requirements under the Paperwork 

Reduction Act. DOE estimates that the public reporting burden for the certification 

to average 20 hours per response, including the time for reviewing instructions, 

searching existing data sources, gathering and maintaining the data needed, and 

ccmpleting and reviewing the ccllection of information. DOE has submitted the 

requirement to the Office of Management and Budget (OMB) for approval. 

Statutory authorization for the rule 

The direct final rule is authorized by the Energy Policy and Conservation Act of 

1975, as amended, as codified at 42 U.S.C. §§ 6291-6309. 

Executive Order No. 12,866 (Regulatory Planning and Review) 

DOE determined the final rule to be eccnomically significant under the Order and 

has been reviewed by OMB. 

Executive Order No. 13,132 (Federalism) 

DOE states that it followed its policy for the intergovernmental consultation process 

in developing the rule. EPCA governs and prescribes federal preemption of state 

regulations as to energy conservation for the products that are the subject of the 

direct final rule. States can petition DOE for exemption from such preemption to the 

exient, and based on the criteria, set forth in EPCA. (42 U.S.C. § 6297). 

Page 3 GAO-11-BB4R