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

DEPARTMENT OF JUSTICE Antitrust Division

ANNE K. BINCAMAN Assistant Attorney General

MainJ ustice Building 10th&ConstitutionAve_. N. W. Washington. D.C. 20530 (202) 514-2401 / (202) 616-2645 (f)

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### 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-HCFCproducts 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 

### APf(-19'.96(FRII 

### 10-:46



## DEPARTMENTOFJUSTICE AntitrustDivision

ANNE

### K.BrNGAMAN AssistanTAllomey

### Gene'rat

Main.JlISliceBuiiding 10th&ConstitutionAve.•N.W Washington.D.C. 20530' (202)514-24011(202)616-2645(t) antinust@justicc.usdoj.govIi.'ema) hup:lfwww.usdoj.gov(WorldWideWeb)



### 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

..Department n) • ' The proposed rules would establishmore 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 ProtectionAgency 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 thatwould 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 APf(-19'.96(FRII 

### 10-:46



## DEPARTMENTOFJUSTICE AntitrustDivision

ANNE

### K.BrNGAMAN AssistanTAllomey

### Gene'rat

Main.JlISliceBuiiding 10th&ConstitutionAve.•N.W Washington.D.C. 20530' (202)514-24011(202)616-2645(t) antinust@justicc.usdoj.govIi.'ema) hup:lfwww.usdoj.gov(WorldWideWeb)



### 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

..Department n) • ' The proposed rules would establishmore 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 ProtectionAgency 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 thatwould 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 marketsin 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 

### ,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 orbo'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 majormanufacturers 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 theirbelief 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 ormore of them to consider 

### P.003 ,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 orbo'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 majormanufacturers 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 theirbelief 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 ormore of them to consider 

### P.003MK. -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 M'l{.**~1~ ~()ltj{l)**  1U:4/
f

April 17, 1996 Page 3

discontinuing themanufacture of certain sizes or types of refrigerators.
Based upon**info~tion** available to the Department in this proceeding, however, we cannot conclude thatpromulgation 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 complybothwith 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 withboth

### DOE and 

### EPA regulations, together with the diversion of corporate attention and resources frommarketing 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 themanufacture of certain sizes or types of refrigerators.
Based upon**info~tion** available to the Department in this proceeding, however, we cannot conclude thatpromulgation 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 complybothwith 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 withboth

### DOE and 

### EPA regulations, together with the diversion of corporate attention and resources frommarketing efforts, could ultimately have an adverseirnpact on the ability**of~eo~'fir.ms** to compeLe.

. 

### /

### ~SinCerelY**YO~S,** j

# ~/1/1,~'{JI(

# Pz<**'f,ilL'~** Anne 

### K. Bingaman Assistant Attorney General 1'.UU4



# '.