APR.-19'.96(FR1( 10:46

DEPARTMENT OF JUSTICE

Antitrust Division

ANNE K. BINCAMAN

Assistant Attorney General

Main Justice Building

10th & Constitution Ave_. N. W.

Washington. D.C. 20530

(202) 514-2401 / (202) 616-2645 (f)

antttnist(w-,justicc .usdol.gov t;atavn)

http_//www.usdoj.gov (world Wide Web)

APR 1 9 1096

The Honorable Christine A. Ervin

Assistant Secretary for Energy Efficiency

and Renewable Energy

United States, Department of Energy

Forrestal Building

1000 Independence Ave.., S.W.

Washington, D.C. 20585

Dear Ms. Ervin:

The Department of Energy ("DOE") has issued a Notice of

Proposed Rulemaking amending the energy conservation standards

for refrigerators, refrigerator-freezers and freezers (60 FR

37368 (the "proposed rules"). Section 325 of the Energy Policy

and Conservation Act, as amended in 1992 (42 U.S.C. 6295)("the

Act"), requires the Attorney General ".-- to determine the

impact, if any, of any lessening of competition likely to result

from the proposed standards-" This letter constitutes the

competitive impact determination of the Department of Justice.

(the "Department")-

P. 002

The proposed rules would establish more stringent energyefficiency standards for three types of household appliances --

refrigerator-freezers ("refrigerators"), compact refrigerators

and household freezers. The proposed rules would require greater

percentage increases in energy efficiency for refrigerators than

for the other products. It promulgated, the new energy standards

will take effect less than five years before regulations

promulgated by the Environmental Protection Agency prohibiting

the use of HCFCs take effect on January 1, 2003. Because it may

be harder to meet the new energy efficiency standards without

HCFCs, the rules contain a separate set of standards for non-HCFC

products that would permit somewhat greater energy useIn order to assess the likely impact of the proposed rules

on competition in the sale of refrigerators, compact

EE-RM-93-801 COMMENT 222

APf(-19'.96(FRII 10-:46 

DEPARTMENTOF JUSTICE 

Antitrust Division 

ANNE K. BrNGAMAN 

AssistanT Allomey Gene'rat 

Main.JlISlice Buiiding 

10th & Constitution Ave .• N. W 

Washington. D.C. 20530' 

(202) 514-24011 (202) 616-2645 (t) 

antinust@justicc.usdoj.gov Ii.'ema) 

hup:lfwww.usdoj.gov (World Wide Web) 

APR , 91~96 

The Honorable Christine A. Ervin 

Assistanc Secretary for Energy Efficiency 

and Renewable Energy 

United States Department of Energy 

Forrestal Building 

1000 Independence Ave." S.W. 

Washington, D.C. 20585 

Dear Ms. Ervin: 

The Department of Energy ("DOEI') has issued a Notice of 

Proposed Rulemaking amending the energy conservation standards 

for refrigerators, refrigerator-freezers and freezers (60 FR 

37368 (the "proposed rul'es"). Section 325 of the Energy Policy 

and Conservation Act, as amended in 1992 (42 U.S.C. 6295) ("the 

Act"), requires the Attorney General ..... to determine the 

impact. if any, of any lessening of competition likely to result 

from the proposed standards _., This letter constitutes the 

competitive impact determination of the Department'of Juscice 

(the .. Departmen t n) • ' 

The proposed rules would establish more stringent energyefficiency standards for three types of househOld appliances --

refrigerator-freezers ("refr,igerators"), compact refrigerators· 

and household freezers. The proposed rules would require greater 

percentage increases in energy efficiency for refrigerators than 

for the other products. If promulgated, the new energy standards 

will take effect less than five years before regulations 

promUlgated b¥ the Environmental Protection Agency prohibiting 

the use of HCFCs take effect on January 1, 2003. Because it may 

be harder to meet the new energy efficiency standards without 

HCFCs, the rules contain a separate set of standards for non-HCFC 

products that would perroitsomewhat greater energy use. 

In order to assess the likely impact of the proposed rules 

on competition in the sale of refrigerators, compact 

APf(-19'.96(FRII 10-:46 P. 002 

DEPARTMENTOF JUSTICE 

Antitrust Division 

ANNE K. BrNGAMAN 

AssistanT Allomey Gene'rat 

Main.JlISlice Buiiding 

10th & Constitution Ave .• N. W 

Washington. D.C. 20530' 

(202) 514-24011 (202) 616-2645 (t) 

antinust@justicc.usdoj.gov Ii.'ema) 

hup:lfwww.usdoj.gov (World Wide Web) 

APR , 91~96 

The Honorable Christine A. Ervin 

Assistanc Secretary for Energy Efficiency 

and Renewable Energy 

United States Department of Energy 

Forrestal Building 

1000 Independence Ave." S.W. 

Washington, D.C. 20585 

Dear Ms. Ervin: 

The Department of Energy ("DOEI') has issued a Notice of 

Proposed Rulemaking amending the energy conservation standards 

for refrigerators, refrigerator-freezers and freezers (60 FR 

37368 (the "proposed rul'es"). Section 325 of the Energy Policy 

and Conservation Act, as amended in 1992 (42 U.S.C. 6295) ("the 

Act"), requires the Attorney General ..... to determine the 

impact. if any, of any lessening of competition likely to result 

from the proposed standards _., This letter constitutes the 

competitive impact determination of the Department'of Juscice 

(the .. Departmen t n) • ' 

The proposed rules would establish more stringent energyefficiency standards for three types of househOld appliances --

refrigerator-freezers ("refr,igerators"), compact refrigerators· 

and household freezers. The proposed rules would require greater 

percentage increases in energy efficiency for refrigerators than 

for the other products. If promulgated, the new energy standards 

will take effect less than five years before regulations 

promUlgated b¥ the Environmental Protection Agency prohibiting 

the use of HCFCs take effect on January 1, 2003. Because it may 

be harder to meet the new energy efficiency standards without 

HCFCs, the rules contain a separate set of standards for non-HCFC 

products that would perroitsomewhat greater energy use. 

In order to assess the likely impact of the proposed rules 

on competition in the sale of refrigerators, compact 

P. 002 
APR.'-19' 96 (FRI )= 10:47 - P. 003

April 17, 1996

Page 2

refrigerators , and freezers , the Department examined the

structure of the affected industries and interviewed

manufacturers and others to determine the likely impact of the

rules on that structure- All three industries are highly

concentrated. Only. five firms account for 95% of all

refrigerator sales in,the U.S.; two firms account for at least

90% of freezer sales in the U.S.; and four firms account for most

sales of compact refrigerators. with the possible. exception of

compact refrigerators, substantial new entry into these markets

in the near future is unlikelyIn assessing the likely impact of the rules on competition

the Department attempted to determine whether the rules would

likely lead to an increase in concentration in any of the

markets . They could do so in two ways; first , by raising the

-cost of appliances and reducing design and feature choices,

standards may lower demand . Second, if standards impose costs on

manufacturers - that cannot be passed on to consumers , they can

lower manufacturers ' rates of return . Either or both of these

effects could cause manufacturers to exit the market , or to stop

making certain types of products, thereby lessening competition

and raising prices.

The proposed rules are largely identical to the proposals

("the Joint Comments") which were formally submitted to DOE on

November 15, 1994. The Joint Comments were the product of two

years of negotiations involving most of the major manufacturers

of these appliances, the Association of Home Appliance

Manufacturers and a group of public utilities and environmental

organizations. The parties stated in the Joint Comments that it

was their belief that the standards would not "lead to a

likelihood of reduced competition."

Some manufacturers, however, now tell the Department their

prior conclusion that the rules would not reduce competition was

based on an assumption that the proposed standards would be

enacted soon after the Joint Comments were submitted. They

contend that the unanticipated delay has changed the way that the

rules will affect them- Because the rules relating to products

that utilize HCFCs will be relevant only until HCFCs are phased

out in 2003, the costs of redesign and retooling needed to bring

these products into compliance cannot be amortized over as long a

product life as anticipated. Thus, some manufacturers have

stated that compliance with the standard will add substantially

to their costs and could lead one or more of them to consider

EE-RM-93-801 COMMENT 222

,APR.':"19' 96(FRI), 10:47 

April 17. 1996 

Page 2 

refrigerators, and freezers, the Department examined the 

structure of the affected industries and interviewed 

manufacturers and others to ~eter.mine the likely impact of the 

rules on that structure. All three industries are highly 

concentrated. Only.five firms account for 95% of all 

refrigera~or sales in.~he U.S.: two firms account for at least 

90% of freezer sales in the U.S.; and four firms account for most 

sales of compact refrigerators. With the possible exception of 

compact refrigerators, substantial new entry into these markets 

in the near future is unlikely. 

In assessing the likely impact of the rules on competition 

the Department attempted to determine whethe~ the rules would 

likely lead to an increase in concentration in any of the 

markets. They could do so in two ways; first, by raising the 

'cost of appliances .. and reducing design and feature choices. 

standards may lower demand. Second, if standards impose costs on 

manufacturers.that cannot be passed on to consumers, t.hey can 

lower manufacturers' rates of return. Either or bo'th o£ these 

effects could cause manufacturers to exit the market, or to stop 

making certain types of products, thereby lessening competition 

and raising prices. 

The proposed rules are largely identical to the proposals 

("the Joint Corornents") which were formally submitted to DOE on 

November IS, 1994. The Joint Comments were the product of two 

years of negotiations involving most of the major manufacturers 

of these appliances, the Association of Home Appliance 

ManufacLurers and a group of public utilities .and environmental 

organizations. The parties stated in the .loi'nt Comments that it 

was their belief that the standards WOuld not "lead to a 

likelihood of reduced competition." 

Some manufacturers. however, now tell the Department their 

prior conclusion that the rules would not reduce competition w~s 

based on an assumption that the proposed standards would be 

enacted soon after the Joint Comments were submitted. They 

contend that the unanticipated delay has changed the way that the 

rules will affect them. Because the rules relating to products 

that utilize HCFCs will be relevant only until HCFCs are phased 

ou~ in 2003, the costs of redesign and retooling needed to bring 

these produc~s into compliance cannot be amortized over as long a 

product life as anticipated. Thus, some manufacturers have 

stated that compliance with the standard will add substantially 

to their costs and could lead one or more of them to consider 

,APR.':"19' 96(FRI), 10:47 P. 003 

April 17. 1996 

Page 2 

refrigerators, and freezers, the Department examined the 

structure of the affected industries and interviewed 

manufacturers and others to ~eter.mine the likely impact of the 

rules on that structure. All three industries are highly 

concentrated. Only.five firms account for 95% of all 

refrigera~or sales in.~he U.S.: two firms account for at least 

90% of freezer sales in the U.S.; and four firms account for most 

sales of compact refrigerators. With the possible exception of 

compact refrigerators, substantial new entry into these markets 

in the near future is unlikely. 

In assessing the likely impact of the rules on competition 

the Department attempted to determine whethe~ the rules would 

likely lead to an increase in concentration in any of the 

markets. They could do so in two ways; first, by raising the 

'cost of appliances .. and reducing design and feature choices. 

standards may lower demand. Second, if standards impose costs on 

manufacturers.that cannot be passed on to consumers, t.hey can 

lower manufacturers' rates of return. Either or bo'th o£ these 

effects could cause manufacturers to exit the market, or to stop 

making certain types of products, thereby lessening competition 

and raising prices. 

The proposed rules are largely identical to the proposals 

("the Joint Corornents") which were formally submitted to DOE on 

November IS, 1994. The Joint Comments were the product of two 

years of negotiations involving most of the major manufacturers 

of these appliances, the Association of Home Appliance 

ManufacLurers and a group of public utilities .and environmental 

organizations. The parties stated in the .loi'nt Comments that it 

was their belief that the standards WOuld not "lead to a 

likelihood of reduced competition." 

Some manufacturers. however, now tell the Department their 

prior conclusion that the rules would not reduce competition w~s 

based on an assumption that the proposed standards would be 

enacted soon after the Joint Comments were submitted. They 

contend that the unanticipated delay has changed the way that the 

rules will affect them. Because the rules relating to products 

that utilize HCFCs will be relevant only until HCFCs are phased ou~ in 2003, the costs of redesign and retooling needed to bring 

these produc~s into compliance cannot be amortized over as long a 

product life as anticipated. Thus, some manufacturers have 

stated that compliance with the standard will add substantially 

to their costs and could lead one or more of them to consider 

P. 003 
MK. -19 `fb(FKI) I U : 4

April 17, 1996

Page 3

discontinuing the manufacture of certain sizes or types of

refrigerators.

Based upon information available to the Department in this

proceeding , however, we cannot conclude that promulgation of the

proposed rules is likely to have a substantial adverse effect on

competition in the markets for these products . While the rules

may result in some -changes in the product mix offered by some

manufacturers , and may result in the discontinuation of certain

models of each of the products , "the available evidence does not

demonstrate that competition in these markets likely would be

substantially affected by the proposed rules.

Y. UU4

The Department notes, however , that it does have some

.concerns about the cumulative. effects of these and other energy

efficiency regulations on the markets for refrigerators and

freezers . Manufacturers will . be required to comply both with the

proposed rules and the requirement for a phaseout of the use of

HCFCs by January 1, 2003. There is some evidence suggesting the

previous round of energy efficiency rules for freezers were a

significant factor in the decisions of two firms to cease

manufacture of=those products , leaving an extremely concentrated

market dominated by the two remaining firms . The cumulative

effect of the costs of compliance with, both DOE and EPA

regulations , together with the diversion of corporate attention

and resources from marketing efforts, could ultimately have an

adverse impact on the ability of .. ome' firms to compete.

Sincerely you$s,

-1 L

Anne K_ Bingaman

Assistant Attorney General

EE-RM-93-801 COMMENT 222

M'l{. ~1~ ~()ltj{l) 1U:4/ f 

April 17, 1996 

Page 3 

discontinuing the manufacture of certain sizes or types of 

refrigerators. 

Based upon info~tion available to the Department in this 

proceeding, however, we cannot conclude that promulgation of the 

proposed rules is lik~lY to have a substantial adverse effect on 

competition in the markets for these products. While the rules 

may result in some-changes in the product mix offered by some 

manufacturers, and may result in the discontinuation of certain 

modeis of each of the products I ·the available evidence does not 

demonstrate that competition in these markets likely would be 

substantially affected by the proposed rules. 

The Department notes. however. that it does have some 

,concerns about the cumulative .effects of these and other energy 

efficiency regulations on the markets for refrigerators and 

freezers. Manufacturers will. be required to comply both with the 

proposed rules and the requ~rement for a phaseout of the use of 

HCFCs by January 1, 2003. There is some evidence suggesting the 

previous round of energy efficiency rules for freezers were a 

signifi9ant factor in the decisions of two firms to cease 

manufacture of ,those products, leaving an extremely concentrated 

market dominated by the two remaining firms. The cumulative 

effect of the costs of compliance with both DOE and EPA 

regulations, together with the diversion of corporate attention 

and resources from marketing efforts, could ultimately have an 

adverseirnpact on the ability of~eo~'fir.ms to compeLe. . / 

~SinCerelY YO~S, j 

C/t~~-{J' I( ;9-;1 ~fi-l ,,£-., 

Anne K. Bingaman 

Assistant Attorney General 

1'. UU4 

'. 

M'l{. ~1~ ~()ltj{l) 1U:4/ f 

April 17, 1996 

Page 3 

discontinuing the manufacture of certain sizes or types of 

refrigerators. 

Based upon info~tion available to the Department in this 

proceeding, however, we cannot conclude that promulgation of the 

proposed rules is lik~lY to have a substantial adverse effect on 

competition in the markets for these products. While the rules 

may result in some-changes in the product mix offered by some 

manufacturers, and may result in the discontinuation of certain 

modeis of each of the products I ·the available evidence does not 

demonstrate that competition in these markets likely would be 

substantially affected by the proposed rules. 

The Department notes. however. that it does have some 

,concerns about the cumulative .effects of these and other energy 

efficiency regulations on the markets for refrigerators and 

freezers. Manufacturers will. be required to comply both with the 

proposed rules and the requ~rement for a phaseout of the use of 

HCFCs by January 1, 2003. There is some evidence suggesting the 

previous round of energy efficiency rules for freezers were a 

signifi9ant factor in the decisions of two firms to cease 

manufacture of ,those products, leaving an extremely concentrated 

market dominated by the two remaining firms. The cumulative 

effect of the costs of compliance with both DOE and EPA 

regulations, together with the diversion of corporate attention 

and resources from marketing efforts, could ultimately have an 

adverseirnpact on the ability of~eo~'fir.ms to compeLe. . / 

~SinCerelY YO~S, j 

~/1/1,~'{J I( Pz< 'f,ilL'~ Anne K. Bingaman 

Assistant Attorney General 

1'. UU4 

'.