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# ~GAO 

# __ Accountability· IntegrIty' Reliability United States Government Accountability Office Washington, DC 20548
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-319741 May 26,2010 The Honorable Jeff Bingaman Chairman The Honorable Lisa Murkowski Ranking Member Committee on Energy and Natural Resources United States Senate The Honorable Henry A. Waxman Chairman The Honorable Joe Barton Ranking Member

. Committee on Energy and Commerce House ofRepresentatives Subject: 

### Departmentof Energy: Energy Conservation Program: Energy Conservation StandardsforResidential WaterHeaters, DirectHeatingEquipment, and PoolHeaters Pursuant to section 801(a)(2)(A) oftitle 5, United States Code, this is our report on a major rule promulgated by the Department ofEnergy (DOE), entitled "Energy Conservation Program: Energy Conservation Standards for Residential Water Heaters, Direct Heating Equipment, and Pool Heaters" (RIN: 1904-AA90). It was published in the 

### FederalRegisteras a final rule on April 16, 2010. 75 Fed. Reg. 20,112. We received the rule on May 11, 2010. The final rule has an effective date of June 15,2010, although compliance with the amended standards for residential water heaters is notrequired until April 16, 2015, and compliance with the amended standards for direct heating equipment and pool heaters is not required until April 16, 2013. The final rule amends the existing energy conservation standards for residential water heaters (other than tabletop,and electric instantaneous models), gas-fired direct heating equipment, and gas-fired pool heaters. DOE determined that the amended standards for these products would result in significant conservation of energy and are technologically feasible and economicallyjustified. The final rule, a major rule under the Congressional Review Act (CRA), has an announced effective date ofJune 15, 2010. CRA requires a 60-day delay in the

GAO-IO-750Reffective date ofa major rule from the date ofpublication in the 

### FederalRegisteror receipt ofthe rule by Congress, whichever is later
. 5 U.S.C. 801(a)(3)(A). The rule was published in the 

### FederalRegisteron April 16, 2010, but we did not receive the rule until May 11, 2010. Therefore, the final rule does not have the required 60

-day delay in its effective date. Enclosed is our assessment ofDOE's compliance with the procedural steps required by section 801(a)(1)(B)(i) through (iv) oftitle 5 with respect to the rule. Our review ofthe procedural steps taken indicates that, with the exception ofthe effective date, DOE complied with the applicable requirements. Ifyou have any questions about this report or wish to contact GAO officials responsible for the evaluation work relating to the subject matter ofthe 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 ofEnergy

Page 2 GAO-IO-750RENCLOSURE 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 WATER HEATERS, DIRECT HEATING EQUIPMENT, AND POOL HEATERS" (RIN: 1904-AA90) 0) Cost-benefit analysis DOE prepared a cost-benefit analysis in conjunction with the final rule. DOE determined that the standards adopted in the final rule will save approximately 2.81 quads Btu ofenergy over a 30-year period, and eliminate the need for approximately three new 250 MW power plants. The energy savings will result in cumulative greenhouse gas emission reductions ofapproximately 164 million tons of carbon dioxide, and alleviate air pollution by resulting in cumulative emissions reductions ofapproximately 124 kilotons ofnitrogen oxides and 0.54 tons ofpower plant mercury. DOE determined that the annualized monetized benefits ofthe rule would be $1,676 million per year, using a 7

- percent discount rate, and $2,020.5 million peryear using a 3

-percent discount rate. The costs are estimated to be $1,284.9 per year using a 7

- percent discount rate, and $1,249.3 per year using a 3-percent discount rate. (ii) Agency actions relevant to the Regulatory Flexibility Act, 5 U.S.C. §§ 603-605, 607, and 609 DOE determined that the final rule may have a significant economic impact on a substantial number of small entities, and therefore prepared a final regulatory flexibility analysis. DOE determined that two ofthe three major manufacturers that control nearly 100 percent ofthe traditional direct heating equipment (DHE) market are small business manufacturers. There are ten small business manufacturers of gas hearth DHE, but none ofthe three major manufacturers is considered a small business. DOE determined that a/ typical small business manufacturer oftraditional DHE will have 6.5 productlines requiring conversion with an estimated total conversion cost of $1.92 million, while a typical large business manufacturer oftraditional DHE will have 4 product lines requiring conversion with an estimated total conversion cost of $790,000. DOE also notes that regardless ofthe standard adopted, small business manufacturers are more likely to be disproportionately harmed because they have a much smallervolume across which to spread similar costs. DOE concluded that gas
GAO-IO-750Rhearth DHE manufacturers, including small business manufacturers, will be able to maintain a viable number ofproduct offerings following the compliance date ofthe amended energy conservation standa rd
. (iii) Agency actions relevant to sections 202-205 ofthe Unfunded Mandates Reform Act of 1995,2 US
.C. §§ 1532

- 1535 DOE determined that the final rule does not contain a federal intergovernmental mandate, but that it may impose expenditures of$100 million or more on the private sector. (iv) Other relevant information or reauirements under acts and executive orders Administrative Procedure Act, 5 US
.C. §§ 551 et sea. DOE commenced the rulemaking on September 27,2006, by publishing on its Web site a "Rulemaking Framework for Residential Water Heaters, Direct Heating Equipment, and Pool Heaters." On November 24,2006, DOE published a notice announcing the availability ofthe framework document and a public meeting and requesting comments on the matters raised in the document. 71 Fed
. Reg. 67,825
. DOE held the framework document public meeting on January 16, 2007. On January 5, 2009, DOE announced an informal public meeting and the availability on its Web site ofa preliminary technical support document, which was published in the 

### FederalRegjsteron January 13, 2009
. 74 Fed. Reg
. 1,643
. DOE held a public meeting on February 9,2009
. On December 11, 2009, DOE published a notice ofproposed rulemaking to consider amending the existing residential water heater, direct heating equipment, and pool heater energy conservation standards. 74 Fed
. Reg. 65,852. DOE held a public meeting onJanuary 7,2010, to hear oral comments and solicit information related to the proposed rule
. DOE responded to those comments and written comments in the final rule. 75 Fed. Reg. 20,112. Paperwork Reduction Act, 44 US
.C. §§ 3501

-3520 The final rule contains an information collection requirement subjectto the Paperwork Reduction Act, which has been approved by the Office ofManagement and Budget COMB) under control number 1910

- 1400. DOE estimated that the public reporting burden for compliance reporting for energy and water conservation is to average 30 hours per response, including the time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection ofinformation. Statutory authorization for the rule The final rule is authorized by Part A ofTitle 

### III ofthe Energy Policy and Conservation Act, as amended, codified at 42 US
.C. § 6295.

Page 2 GAO-1O-750RExecutive Order No. 12,866 (Regulatory Planning and Review) The final rule was determined by DOE to be a significant regulatory action under Executive Order 12,866 and was reviewed by the Office ofManagement and Budget
. Executive Order No. 13,132 (Federalism) The final rule does not address Executive Order No
. 13,132.

Page 3 GAO-IO-7fiOR