1

2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 UNITED STATES DEPARTMENT OF ENERGY

+ + + Conservation and Solar Energy

+ + + PUBLIC MEETING MORNING SESSION Energy Conservation Program for Consumer Products

+ + + NOTICE OF PROPOSED RULEMAKING REGARDING ENERGY EFFICIENCY STANDARDS FOR REFRIGERATORS AND REFRIGERATOR/FREEZERS, FREEZERS, CLOTHES DRYERS, WATER HEATERS, ROOM AIR CONDITIONERS,

FURNACES, KITCHEN RANGES AND OVENS, AND

CENTRAL AIR CONDITIONERS

+ + + Room 3000A, Federal Building 12th Street and Pennsylvania Avenue, Northwest Washington, D. C.

+ + + 9:00 A. M. Wednesday, July 16, 1980 BEFORE: John Millhone, Presiding Official

Director, Office of Buildings and Community Systems Conservation and Solar Energy 

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9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 PANEL MEMBERS: James A. Smith Chief, Consumer Products Efficiency Branch Office of Buildings and Community Systems Conservation and Solar Energy Loren D. Raap Engineer, Consumer Products Efficiency Branch Office of Buildings and Community Systems Conservation and Solar Energy Richard R. Furlong Senior Engineer, Consumer Products Efficiency Branch Office of Buildings and Community Systems Conservation and Solar Energy George E. Pomeroy Economist, Systems Analysis Branch Office of Buildings and Community Systems Conservation and Solar Energy Victor P. Petrolati Engineer, Consumer Products Efficiency Branch Office of Buildings and Community Systems Conservation and Solar Energy John D. Wilman Economist, Office of Conservation, Policy and Evaluation; Policy and Evaluation Eugene Margolis, Esq. Counsel for Consumer Products Efficiency Branch Office of General Counsel

+ + +

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### 3 I 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 C O N T E N T S

1. Opening Remarks . . . . . . . . . . . . . . . . . 4 2. Questions and Answers - General . . . . . . . . . 13 3. Questions and Answers

- Economic . . . . . . . . 44

+ + +

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### 4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 P R O C E E D I N G S MR. MILLHONE: Good morning. I want to call this public meeting together at this time.

The meeting was carefully planned to show theimportance of internal air conditioning and the government's commitment to the emergency building temperature restriction program.

Good morning and welcome. I am John Mi_llhone, the Presiding Official of this meeting and the Director of the Office of Buildings and Community Systems.

I want to extend to you, on behalf of the Department of Energy, our thanks to you for taking part in this public meeting. Your presence here today is evidence of your interest in this program, and is inkeeping with President Carter's desire for public participation in the Federal Government's decision-making process. As you know, the Energy Policy and Conservation Act, as amended by the National Energy Conservation Policy Act, requires that the Department of Energy prescribe energy efficiency standards for refrigerators, refrigerator-freezers, freezers, clothes dryers, water heaters, room air conditioners, home heating equipment not including furnaces, kitchen ranges and ovens, central air conditioners,, and furnaces by December of 1980.

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### 5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 On June 30, 1980, a Notice of Proposed Rulemaking was published in the Federal Register regarding these upcoming energy efficiency standards. In that notice, pursuant to Section 336 of the Act, it was announced that a public meeting would be held on today, July 16th, to address questions relevant to this notice.

To further clarify the purpose of today's meeting, let me cite the legislation pertaining to administrative procedures and judicial review for the Energy Conservation Program for Consumer Products Other than Automobiles. There are several citations that are in my prepared statement. I will submit the whole statement into the record. However, I am not going to read through this list of numbers.

The rules that are set forth in that Act require that interested persons shall be afforded an opportunity to present written and oral data, views, and arguments with respect to any proposed rule.

In the case of a rule under Section 325(a) -- that is, these proceedings -- the Administrator shall, by means of conferences or other informal procedures, afford any interested person an opportunity to question any other interested persons who have made oral presentations, and employees of the U. S. who have made written or oral presentations with, respect to disputed issues of material

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 fact. Such opportunity shall be afforded to the extent the Administrator determines that questioning pursuant to such procedures is likely to result in a more timely and effective resolution of such issues.

Let me just say informally that that is the purpose of this session. It is to give those of you who are interested in the rule a chance to question those of us at DOE who have worked on the rule, so that you will have a better understanding of the basis for our recommended proposed rule, and so that in the upcoming public hearings you will be able to design your comments so that they will be as direct and clear and relevant and pertinent as possible, so that the information that you give us will help us develop the best possible final rule, and so that we will be able to consider fully your concerns and interests and positions in making that final, rule development.

A transcript shall be held of all oral presentations made during this session.

It has been determined that this meeting today and the upcoming related hearings satisfy the legislative requirement I mentioned above,

As of July 8 of this year, DOE had received over 300 questions. Of those questions, we have selected

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### 7 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 those which we believe are the most pertinent or which will provide clarification to the various interests concerned. In order to respond to as many of those questions that were submitted in advance as possible, we will try to limit new questions here to the extent that they go into areas that haven't been touched with to some extent by one of the written questions that we have received. However, I think in explanation, the questions that we have received have been so broad in. scope and have covered so many issues, that most of the questions which you have relevant to the final rule would seem to me to be appropriate.

All comments made here today are being recorded by a court reporter and will be available for inspection at the Freedom of Information Office. You may want to get this number down. That is in Room 5B180 of the Forrestal Building at 1000 Independence Avenue, Southwest.

Anyone wishing to purchase a copy of the transcript can make arrangements with the court reporter.

Because of the transcript being made, when we get to the portion of the meeting where questions are received, I will insist that you identify yourself so that we have that as part of the record. 

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2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Now, we will not be able to, in the limited amount of time available today, fully answer all of the questions that we have received. We have tried to go through them in part and identify those that are most important and bring together those that deal with the same issue.

For those questions that are not addressed here today, the department will provide a written response. A complete set of all questions and answers will be made available to the Freedom of Information Office for your inspection. That is, the written response will be returned to the lberson who has submitted that question, and then a copy of all the questions and answers will be available in the FOI information room.

The questions that we have received have been placed into four different general categories. These are questions that are general in nature, or administrative or legal in nature -- that is one category; the second category is questions that are economic in nature; the third category are questions that are product specific; and the fourth category are questions that deal with certification and enforcement.

After the questions and answers are dealt with by one of DOE's staff people in each of these categories, then we will provide an opportunity for questions from the

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### 9 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 floor relevant to that category. For example, the first

category will be the general questions in nature. I would anticipate our taking something in the range of 45 minutes or 30 to an hour, I think, depending upon the category of questions, summarizing the questions that we have received and giving the answers. And then after that, there will be questions from the floor in that particular category. So, if you have a question, say, on certification and enforcement, I would like for you to wait and ask that questions after we have had the questions and answers on that particular category.

With four categories, our intent is to cover the general category in terms of the formal questions and answers, and questions from the floor; and then take a mid-morning break; and after that, cover the economic questions before taking a noon break. Then after we get back after lunch, covering the product specific questions, taking a mid-afternoon break, and then covering the certification and enforcement questions.

I would like to ask you to please not to stray from the subject at hand, and to be as brief as possible in your asking of the questions. Your cooperation will enable us to address the maximum number of questions possible.

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 I would like to stress again the difference between this public meeting, which is for the purpose of clarifying the reasons why DOE has made the proposed rule that it has made and the public hearings that will come later on , which are designed for people who are interested in the hearing to state your positions on the rule, on. the proposed rules.

I would like to ask you or invite you to pickup an information package on our program at the registration desk at the morning break , if you have not already done so. Contained in that package you will find the notice of proposed rulemaking , program legislation, and a fact sheet.

I would also like to suggest that yo.u place yourself on our mailing list by completing the blue postcard which you will find inside. the information package . We have tried over the past , year to develop a system that will ensure the prompt receipt of useful information by you and which will stimulate interest and generate participation at the pub^lic.meetings and hearings Your filling out of that postcard will help us keep this information list current.:

The public hearings relating to this notice of proposed rulemaking will be= held the last three weeks of August . The dates , times, and locations are in the

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### 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 information folder. I won't repeat them now. I certainly encourage you to attend and participate in these hearings, as well as to submit written comments. Let me emphasize that, because in dealing with this hearing, this rulemaking process, one of the areas that is of most importance in terms of developing the final standards is the various impacts, and to the extent that you have information on the impacts of the proposed rule and can put that information into the hearing record, that will provide that additional information that will enable DOE to put together the final rule.So, the final rules will be importantly affected by the information that comes in in the hearing process, and your active participation can help us end up with a better final rule.

The end of the public comment period is August 29, 1980. We intend to stick with that date for the end of the public comment period. We feel as if that is necessary for us to meet the statutory deadline for the final standards in December of this year.

Fifteen copies of a speaker's prepared testimony -- that is, if you want to be a speaker at a public hearing -- 15 copies must be received in our Office of Hearings and Dockets at the address listed in 

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10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 the notice of proposed rulemaking no later than August 4,

1980 for the Washington hearing, and August 18, 1980 for the Chicago hearing.

Now, if you intend to submit written, rather than oral, comments, we also ask that 15 copies be submitted to the Office of Hearings and Dockets at the same address. We would greatly appreciate your efforts in providing these copies of comments and statements. And to the extent that you can get them in ahead of those dates, they will help us in analyzing them and getting a head start on some of the issues that are involved.

I would now like to introduce the members of the panel. I will go from your right to your left.

At the far end is Loren Raap, a former member of my staff who was instrumental in developing the NOPR. To his right is Richard Furlong, a senior engineer with the Consumer Products Standards. On my immediate left is James A. Smith, the chief of the Consumer Products Efficiency Standards Program. On my immediate right is George Pomeroy, our staff economist. On his right is Vic Petrolati, an engineer for the certification and enforcement program. On his right is John Wilman of the DOE Policy Office. And on the far right is Gene Margolis, the counsel for the program.

I will now turn the meeting over to Jim Smith,

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9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 who will present the first category of questions and

answers, those that were general in nature.

Jim. MR. SMITH: Thank you, John. I will be addressing 19 questions which we kind of categorized as general in nature. I will read the questions verbatim as received. I will not identify the person or manufacturer who submitted the question.

The first question is: Referencing the engineering analysis report, Technical Support Document 4, page C-11, how was the formula derived to arrive at the 1.7 mark-up factor? What were the elements considered in the term "overhead"?

The answer to that question is: The estimate was based on interviews with various manufacturers and distributors. The multiplier of 1.7 times ex factory cost, which is the cost to distributor, to arrive at the price to the consumer results from using a distributor margin of 15 percent, which is equivalent to a multiplier of 1.18, plus the retail margin of 30 percent is the multiplier of 1.43.

In addition, factory costs, including burden of labor, were marked up by a margin of 26 percent, a multiplier of 1.35, to get the ex factory cost.

This results in a total multiplier of 1.7 times

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2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 1.35, which equals 2.3 to be applied to factory cost to arrive at the consumer cost.

If any of you have concerns on how these figures were derived, we would appreciate receiving your additional input and comments.

The second question: Will interested parties have an opportunity to review and respond to the finalstaff recommendation of the rules prior to their publication in December of 1980? This was done by the FTC staff as part of the energy labeling program.

The answer: The Department of Energy Organizational Act, Section 501, and the Procedures for the Development and Analysis of Regulations, DOE Order No. 2030.1, do not provide for parties to review and respond to final staff recommendations of the rules prior to their issuance and publication.

Question No. 3: DOE has stated that "Product designs in prototype from January, 1980 represent the maximum technologically feasible product..." Pages 4 through 6. Are these prototypes available for inspection or are there reports available that accurately describe the design options used and their individual impact on product energy efficiency improvements for each of the standards proposed?

The answer: Maximum, technologically feasible

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### 15 levels are based on combinations of design options known to be currently under development by various manufacturers The design options are described in the Engineering Analysis Document, Technical Support Document No. 5.

For example, design options for maximum technologically feasible levels for refrigerators and refrigerator-freezers are described on pages Dl through 15 and Dl through 16 -- those are tables -- of the Technical Support Document No. 5.

The values of performance parameters used to determine the energy factor for each class are given in Tables 1.1 through 1.7. The resulting energy factors of each class, ranging from 8,9 to 22.2 for the particular unit analyzed, are given in the tables and the resulting volume-efficiency relationships are summarized on page D1-17- The next question: If the hearings are scheduled by product type, how will DOE Handle comments from multi-product manufacturers that address generic issues as well as product specific issues?

Answer: Multi-product manufacturers can address generic issues as part of the comments for the first product specific testimony presented, and reference this fact during subsequent product specific testimony. DOE, during its analysis of product specific issues will

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10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 refer back to the generic issues as appropriate. Next question: In the case of comfort heating and cooling equipment, the test procedures determine the efficiency of the equipment and this efficiency is reported as AFUE, SEER or EER. The test procedures then give a method for calculating consumption based on a known structure heat loss, heat gain or hours of operation, because the energy consumption of these products varies considerably with their use and the building in which they are installed.

In view of this, why does DOE then define a basic model furnace as units having electrical, physical or functional characteristics that do not affect energy consumption rather than as having electrical, physical or functional characteristics that do not affect energy efficiency? Would this not be more in keeping with energy efficiency standards?

Answer: This is essentially done, since the only measure of energy consumption that is included in the standards is energy efficiency.

Next question: Please define all of the element used in establishing the factory cost for each product type. Answer, and this is a short answer: All product cost elements were included as given in the engineering

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### 17 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 analysis, Technical Support Document No. 5. Next question: What action is or will be taken by DOE in regard to notifying states that all, or part of,some state regulations will be superseded upon promulgation of the final rule in December?

Answer: In the final rule, DOE will state the effect the federal standards have on state regulations or other state requirements with respect to energy efficiency or energy use. DOE will mail the final rule to each of the 50 States.

Next question: How does DOE plan to evaluate the burden on interstate commerce which could result from differing state efficiency regulations?

Answer: Each petition whether by a state for a rule not to supersede or by a manufacturer for a rule tosupersede will be judged separately based on the information supplied by all parties to the proceeding.

Question: The DOE definition of small business as a gross revenue of less than 8 million per year for all operations including both covered and non-covered products is considerably different than most other government used definitions of small business. What is th reason for this difference?

Answer: Congress established the criteria for an exemption for any manufacturer from all or part of the NEAL R. GR O SS COURT REPORTERS AND TRANSCRIBERS 1330 VERMONT AVENUE, NW (202) 234-4433 WASHINGTON , D. C. 200051 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 18

requirements of any rule prescribing an energy efficiency standard for any period which does not extend beyond the date which. is 24 months after the date such rule is prescribed.

The 8 million refers. to the annual gross revenues to such manufacturers for the preceding 12 month period from all its operations, including the manufacture and sale of covered products.

In making such a finding, the annual gross revenues of any other person who controls, is controlled by, or is under control with such manufacturer shall be taken into account.

Question: Section 430,52(b) requires the applicant to identify all other manufacturers of the same or similar product types and all other persons who may be aggrieved. Will not all of this information be in DOE's files as a result of the certification and enforcement requirements and might not the analysis performed by a small business be expected to be less complete than one performed by DOE?

Answer: DOE will make known the names of other manufacturers of the same or similar product types that it has obtained as a result of the certification and enforcement requirements to a small business upon request.

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### 19 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Question: What justification was used in ignoring time delays caused by certification laboratories as noted under the heading "Design Option Lead Times" on page 4 of the engineering analysis?

Answer: DOE does not have information indicatin that these delays would pace the development of more efficient models. Manufacturers are.invited to submit written data on this subject during the comment period.

Question: The six month period between the publication and effective date of the final rule does not provide adequate time to certify our ovens -- page 1-16, appliance efficiency standards of the NOPR.' There is a large volume of initial testing required.

For example, we will have 24 to 32 basic oven/ door configurations to test.

Would DOE consider extending the effective date from July 15, 1981 to an alternative later date?

Answer: DOE would consider extending the effective date if such an extension is justified. Interested parties are invited to submit comments regarding this subject, providing information on the reasons an extension is needed.

Question: DOE believes that consumer utility f the consumer product efficiency standards appliances should improve or, at worst, remain unchanged -- page 3-31

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### 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 environmental assessment. In view of the fact that some insulated wall thicknesses could be increased, thereby reducing thermal cavities of some major appliances, how would consumer utility improve or maintain the same level? Answer: DOE states on page 3-31 of the environmental assessment document that implementation of energy efficiency standards could result in some loss of utility to consumers. However, based on the design options anticipated for use in meeting the standards, loss of internal volume is expected in very few cases.

Question: The preamble, 1.3.1, states that standards apply only to units manufactured after the effective date. What happens to inventories? Can units in inventory on the effective date be distributed in commerce after such effective date if such units do not meet the applicable standards? See 430.61.

Answer: Units in inventory manufactured before the effective date may be distributed in commerce after such effective date even if such units do not meet the applicable standards. Documentation must exist to prove that the units in inventory were manufactured before the effective date,

Question: What rules or guidelines will DOE follow during the proposed rulemaking phase respecting

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### 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 ex parte communications, written or oral? Answer: It is DOE policy that ex parte communications will not take place once a proposed rule has been issued for public comment. Requests for written information or materials will be handled through formal channels with the information or materials being made available to the public or interested parties in the public reading room of the Freedom of Information Office, Arrangement will be made by individual requesters to purchase copies of desired materials.

Question: What will constitute the rulemaking record? Answer: The following materials consitute the rulemaking record:

One, the notice of proposed rulemaking and any documents referred to therein;

Two, comments and other documents submitted by interested persons;

Three, any transcripts of oral-presentations made in the course of the rulemaking;

Four, factual information not included in the foregoing that was considered by the authority responsible for promulgation of the rule or that is proffered by the agency as pertinent to the rule;



### Five, reports of any advisory committees;

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### 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 And six, the agency's concise general statement

or final order and any documents referred to therein.

The rulemaking record above-mentioned will be available in the Office of Hearings and Dockets, and accessible to the public in the public reading room of the Freedom of Information Office. A transcript of the public meeting and all public hearings will be retained by DOE and made available for inspection at the DOE Freedom of Information Office.

Question: How does DOE plan to implement Section 336(a)(2)(A) and 336(a)(2)(B) of NECPA? Does DOE contend that the July 16, 1980 public meeting satisfies the requirements of subsection (A), as Section 11.4 of the preamble would indicate?

The answer: Section 336(a)(2)(A) of NECPA will be implemented during the opportunity for rebuttal statements portion of the public hearing proceedings. At that time interested persons will be given an opportunity to question other interested persons who have made oral presentations at the hearing.

Section 336(a)(2)(B) of NECPA is considered satisfied by this public meeting whereby interested person were given the opportunity to question employees of the U. S. who have made written or oral presentations with respect to disputed issues of material fact. 

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Question: Dealing with waiver rule versus

energy efficiency certification, on March 4, 1980, the DOE published the proposed rulemaking for the waiving of consumer product test procedures. This proposed rule provides protection for manufacturers from premature disclosure of a special energy saving feature or product not covered in the existing test procedure by providing exemption from the testing of such feature or product until it was on the market and a test procedure developed.

Clarify the interrelationship between the proposed waiver rule and the energy efficiency standards.

If a manufacturer designed an energy saving feature or product that could not be tested for energy consumption or energy efficiency by the existing test procedure and accordingly filed for a waiver of the test procedure, would the waiver take precedence over the certification aspects of the energy efficiency rule?

Answer: If a test procedure is waived without conditions-for a basic model, that basic model is not subject to the DOE energy efficiency standards since there are no test procedures as required by Section 325(b) of the Act. However, if the waiver is granted subject to conditions, the waiver will address whether or not the basic model is covered by the energy efficiency standards.

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5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 

### 24 The last question is: What provisions, if any, has DOE made for coordination with the Secretary of the Treasury of certification and enforcement procedures for imported covered products?

Answer: DOE is working with the Department of the Treasury to establish certification and enforcement procedures for imported covered products.

MR. MILLHONE: Thank you, Jim. That covers the questions and answers of a written nature in the general category. I will now open up the meeting for questions from the floor.

If there are any attendees who would like to ask a question in this area, I would request that they come forward at this time and ask the question at the microphone as the front of the room.

Are there any question.s? Come ahead. MR. LANGMEAD: Jack Langmead, LAMA. On question 5, where the question was asked, why is the term for comfort heating and cooling equipment defined as a capacity rather than an energy efficiency, the answer was, it is in. fact done that way because that is the measure of efficiency that is specified in the rule. Can somebody respond to the effect of that definition as it relates.to how :you define a basic model? 

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### 25 MR. MILLHONE: Mr. Langmead, let me check with my staff and see if we feel we can answer that question at this point. In this instance and in the future when there are questions that are asked, if I feel that we need some additional time in order to get the accurate answer, what we will do is make certain that we have the question and get the answer back to you and put a copy of the question and answer in the Freedom of Information library.

MR. LANGMEAD: The importance of the answer is that it makes it extremely difficult to comment on the certification and enforcement portion of the rule without knowing that interrelationship.

MR. MILLHONE: If you will just wait for a minute, I will confer with my staff and see if we feel we can answer that question at this time.

MR. LANGMEAD: Fine. Thank you. MR. MILLHONE: Why don't you stay here, you may have some follow-up questions.

MR. LANGMEAD: All right. MR. MILLHONE: The panel, when they comment, should also identify themselves so that we will have a complete record.

Mr. Furlong is going to respond to your question. I believe he is seeking some clarification.

MR. FURLONG: I am not certain what the specific

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### 26 problem is, Jack. Can you clarify, please, the specific issue you are talking about in terms of a basic model definition? I am not clear what the problem is that you have. MR. LANGMEAD: The basic model definition of a furnace, central air conditioners, room air conditioners - the definition of a furnace used in the test procedure now, the question comes around as, there are units built in a series where they are added incrementally. If you have to have a different basic model for each different input or each different output capacity, the number of basic models, when you are talking about capacity rather than efficiency in the definition, expands by a multiple of 50 to 60 or 100. And the issue is, is a line of furnaces with input rates from 20 or.40,000 to 120,000 built in incremental designs that can be proved to have the same energy efficiency, a basic model or a different basic model for each input? And you have revised the definition of a basic model furnace in this rule.

MR. MILLHONE: Hold on for just a minute. Jack, if you could stay for just a minute, I would like to huddle with a couple of people on my staff.

(Caucus.) MR. MILLHONE: Mr. Langmead, that was a good question. Thank you. I believe we understand the question

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### 27 now, and that we need to reserve time to answer it after some additional consideration.

We expect to be able to get written answers on all of those questions that are reserved, such as this one, by the end of next week. And at that time we will make those answers also available in the Freedom of Information library room.

MR. LANGMEAD: Fine, thank you. A similar problem exists with the definition of water heaters, and I think you will find it through several products, where the test procedure determines a rate of consumption rather than a total capacity. It is a little bit like rating a faucet in regard to the tub that it is going to fill; if it is going to fill a one gallon tub, it is a one gallon faucet; if it is going to fill a ten gallon tub it is a ten gallon faucet. Actually, you rate a faucet in how many gallons per minute it delivers.

MR. MILLHONE: As I understand it, and I will be corrected by my staff if I am not, that within a basic model we are concerned about energy efficiency, not energy consumption. The question that you raise is what happens when you sort of elide from one basic model into something that may or may not be a different basic model, and I think that raises some questions that we are going to have to give some additional attention to. 

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### 28 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. LANGMEAD: I have one additional question,

and that is: When the FTC was going through its rulemaking procedure on labeling, it provided some funding tosmall business and consumers to participate in that rulemaking procedure. I understand DOE recognizes the impact of this rule on small business. Is DOE planning to provide any funding for participation in the rulemaking process to either small business or consumers?

MR. MILLHONE: Mr. Langmead, we have investigated that possibility and have found that there are no DOE funds available to provide for that participation either by small manufacturers or by consumers.

MR. LANGMEAD: Thank you. MR. MILLHONE: Are there further questions of a general nature? Yes? Would you please identify yourself?

MR. BURGER: My name is Steve Burger. I am from the California Energy Commission.

I would like clarification on the question and answer with respect to the administrative record that will be developed for the final rule.

If I understood Mr. Smith correctly, the administrative record will include the notice of proposed rulemaking, the comments received, the transcripts made of the proceedings, and I am not sure I got the next one 

### down correctly, but that was facts considered and not NEAL R. GR O SS COURT REP O RTERS AND TRANSCRIBERS 1330 VERMONT AVENUE, NW (202) 234-4433 WASHINGT O N, D.C. 20005

### 29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 included in other materials that were available. Is that correct? MR. MILLHONE: Mr. Smith, would you like to reread that item four of that answer?

MR. SMITH: Yes. Item four that I read is "factual information not included in the foregoing thatwas considered by the authority responsible for promulgation of the rule or that is proffered by the agency as pertinent to the rule."

MR. BURGER: Okay. And the next one wasreports by other agencies that are relevant to the rulemaking, is that correct?

MR. SMITH: Reports by any advisory committees. And last, the agency's concise general statement or final order and any documents referred to therein.

MR. BURGER: Okay. Then if I am interpreting this correctly, you intend to include in the administrative record facts and reports which may support action but which were not necessarily subject to rebuttal or comment by those affected by the rule. Is that correct?

MR. MILLHONE: Mr. Smith, I would like to, since this gets into some questions of a legal nature dealing with the completeness of the record, for purposes of soliciting public comment, ask Mr. Margolis if he has any answer that he can provide. 

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### 30 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. MARGOLIS: With regard to number four,

factual information not included in the foregoing that was considered by the agency, this would be if -- excuse me --- we are not saying that there will be any such type of information. We are saying, if there is other information that was considered by the agency, it would become part of the rulemaking record.

In other words, anything that was considered by the agency in promulgating the rule will be part of the record. We are trying to, in response to the question of what will constitute the rulemaking record, to try to state all various possibilities of documents that will be included. This does not mean that we will include documents that we have not given the public a chance to comment on. If such a situation does come in to play, we would include such a document in the record.

MR. BURGER: Thank you. I take it that that may nevertheless include material that is not now available and will not be identified until perhaps the final rule is published, at which time there is no further comment allowed. Is that correct?

MR. MARGOLIS: No. I know of no -- as of this time I know of no document that would be covered by that No. 4 provision. I am just making a statement to the 

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 effect that if such a document was considered and would not come under the first three categories, we would include it in the rulemaking record.

MR. BURGER: Thank you very much. I have one additional question. I am hoping you can give me some information prior to the time of the final rule with respect to the effect of the DOE program.

You addressed a question with respect to the effect of the DOE program on state standards, Mr. Smith, and I am wondering if you could elaborate on when supercession would occur.

Would it be at the time the final rule is promulgated, or at the time the final rule becomes effective? And if the supercession takes place at the tim the rule is promulgated, what are manufacturers to do during the interim period when a state may engage in a petition process with DOE to allow exemption from the preemption?

MR. MILLHONE: I am going to ask that Mr. Margolis respond to that question, since it is a matter of legal interpretation.

Would you excuse us for just a minute? (Caucus.) MR. MILLHONE: We would like to respond to that question in writing. I want to make certain that I have N EAL R . G RO SS COURT REPORTERS AND TRANSCRIBERS 1330 VERMO NT AVENUE, NW (202) 234-4433 WASHINGTON, D.C. 20005

### 32 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 your name and your address, as well. Do we have that from the court reporter?

MR. BURGER: I will give her my address. Thank you very much.

MR. MILLHONE: If you can take a minute and give your address to the court reporter and to Mr. Margolis, we can get an answer to you right away.

Are there other questions of a general nature? Yes? MR. DEAN: My name is Richard Dean, from Whirlpool. My question is: Will DOE provide for inspection of all contractor computer simulation models and that data input that was used for our inspection? That would be both for the economic models and the engineering models. MR. MILLHONE: Will you give us a moment to ponder that one also, Mr. Dean?

(Caucus.) MR. MILLHONE: Mr. Dean, the answer to your question is that information in that area, in terms of the models, is recognized by DOE as information that it needs to make available. The question is, how can we -- it requires some detail, because some of the information is more rapidly available than other: 

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### 33 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 So, what I would like to do is get an answer

back to you within a reasonably quick period of time that provides some further details in terms of the availability of different parts of that information.

MR. DEAN: I would just like to emphasize that it would be very difficult to comment on both the design alternatives and many of the economic conclusions without that information, and I hope it can be expediently provided. MR. MILLHONE: Mr. Furlong would like to add something to that.

MR. FURLONG: I realize this information is important to people such as Whirlpool, and I am sure other people in the audience that are representing other manufacturers. But on the other side of the coin, there is the case where the analysis has been set forth in both the notice of proposed rulemaking and the technical support documents.

If any manufacturer has reason to believe that the results of the analysis are not correct, it is also the responsibility of you people to provide information that refutes what has been put forth in the notice of proposed rulemaking. So, that is why we have public hearings. And you may find something wrong with one of the models, but that may end up being, you know, somewhat 

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2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 immaterial. If you can prove that what came out of the model is not correct, that is the purpose of why we are holding the hearings, and you have to provide the information to us.

So, it is really kind of a two-way street is what I am trying to say. We, we think, have done our homework correctly. If you think that we have not done it, it is up to you to tell us where we went wrong. And part of it may be in the modeling, but part of it is also the end result. If you know the answer is not correct, you tell us why the answer isn't correct. The model might not have done the job right, but you should be telling us what is incorrect about the final answer is what I am saying.

MR. MILLHONE: Mr. Dean, did you have a further question? MR. DEAN: Yes, just one further followup to that. The key thing that we are interested in is the date input, as opposed to the specific models themselves.

MR. MILLHONE: Your question dealt with the economic models as well as the engineering models.

MR. DEAN: That is correct. MR. MILLHONE: Mr. Furlong was dealing primarily with the engineering models. Mr. Pomeroy is more familiar with the status of the economic models, so I will ask him

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### 35 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 to respond to your question as well. Mr. Pomeroy. MR. POMEROY: Mr. Dean, in regard to the economi modeling, we have provided in our technical support documents the major parameters and assumptions underlying those models. However, I believe you want to get actual control of the model so that you can simulate them, so that you can take a look at the data. Is that correct?

MR. DEAN: That is correct. Let me cite you an example. To project, for example, energy savings from a given standard, there is no information in the TSD as to the specific input that was used to derive those numbers. That is an example of what I am talking about in terms of input. MR. POMEROY: Well, we will consider further how we can give you access to those models. But in general, I believe most of the significant, salient characteristics of those models has been presented, and we might be just splitting hairs to actually look at every line item in those models, every equation, because in many instances their solution is not intuitive. And as I have said, we have provided the prime parameters in our technical support documents.

MR. MILLHONE: Am I correct, Mr. Dean, in understanding that your question was not so much concerned with the model itself, but the data input into N

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### 36 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 the model? MR. DEAN: My question addresses both the model

and the input used to derive, for example, the design options, energy savings of the program, several different topics. But if I had to put a priority on which one I am interested in, probably the data input would be the most important. Certainly, the TSDs cover the basic parameters of the models and how they were designed. But we would like to know how those decisions were arrived at and it would certainly facilitate our comment process.

MR. MILLHONE: The answer to you is that we will get a written letter that provides further details on this subject. Meanwhile, we see the participants who are familiar with this area and who have their own design procedures and their own models used in their own operations as having a responsibility to give us the best information they can based upon their efforts to deal with these same issues.

MR. DEAN: Thank you. MR. SCHROEDER: name is Stanley Schroeder. I am with the Gas Appliance Manufacturers Association.

My question deals with the procedure of the hearing that we can anticipate. Will the hearings be conducted according to any particular rules of the Administrative Procedure Act, such as Section 553 and 557? 

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### 37 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Will there be an opportunity for cross-examination of

commentators? Will there be a hearing officer, and how will motions during the hearings be treated?

MR. MILLHONE: Mr. Schroeder, I would like to ask Mr. Margolis to respond to your question.

MR. MARGOLIS: The public hearings that are to take place in Washington and Chicago will have at the head table a panel of government personnel, one of which will be designated as the chairman.

The people in the audience who have indicated that they wish to present an oral statement at the hearing will be called on to make that statement. The panel can then ask questions of the person making the statement. When he or she concludes their statement, then the remainder of the people who have indicated a desire to make oral comments will be called, and the same procedures will be followed.

At the conclusion of all oral comments, then the chairman will then call back the participants in the same order that they made their original statements to make any additional comments that they wish. At this time they could then ask, as has been the practice in the other public hearings conducted in this program, to ask other persons who made statements questions. Then when that party's turn comes, that party then would answer the 

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### 38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 question. Those would be the procedures that would be

followed in the public hearings.

MR. SCHROEDER: I take it you are saying that there is no formal hearing officer that will be presiding at those hearings?

MR. MARGOLIS: There will be a chairman from one of the members of the panel who will, as today the chairman is Mr. John Millhone, I do not know who the chairman is who will be designated for each of the days of the hearings in Washington and Chicago.

MR. SCHROEDER: Do you think it would be possibl to allow questions to be addressed to people who are makin presentations after the staff has had an opportunity to present them via a vehicle, perhaps, such as submitting questions to the staff for presentation at the time the person is making his presentation, rather than six hours later when the whole thing is done?

MR. MARGOLIS: One of the procedures is for members in the audience who do wish to submit questions to present them in writing to the chairman, who will then decide to ask the question, yes.

MR. SCHROEDER: At the time the presentation is made? 25 11 MR . MARGOLIS: Yes.

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### 39 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. MILLHONE: Thank you, Mr. Schroeder. Next question? MR. BAILY: Good morning. My name is Ted Baily, with Carrier Corporation. I have two questions.

One is on further amplification of Mr. Smith's answer to the imported products question. Will the products of Canadian manufacturers be treated the same as domestic products, or will they come under the rules to be developed by the Treasury? And if the latter, what sort of a timetable do you have for the development of those rules? Will they coincide with the promulgation of the final rule as of the end of this year?

MR. MILLHONE: Give us just a minute, please. (Caucus.) MR. MILLHONE: The Canadian manufactured product would be treated as other products that are manufacturedin a foreign country. DOE.-is currently discussing withTreasury the schedule for the development of those rules, and that schedule hasn't been completed now.

MR. BAILY: Thank you, Mr. Millhone. The other question that I would like to ask concerns Mr. Burger's question on preemption, on promulgation or effectivity. I am interested in the answer to that question, and wonder if it is necessary to haunt the Freedom of Information office to get it, or is there a simpler way of finding N EAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1330 VERMONT AVENUE, NW (202) 234-4433 WASHINGTON, D.C. 20005

### 40 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 out what that answer will be? MR. MILLHONE: Mr. Baily, we would be happy to give you the answer to the same question, and if there are others in attendance at this meeting who would like to get answers to that question or to any other question that is given, if they could give a note to -- I think I might ask Rebecca Dyer, who is in a blue dress at the back of the hall, to receive those requests.

Let me recap what I just said. Mr. Baily has indicated that he would also like to get an answer to the question asked by Mr. Burger on the preemption with regard to the California standard question without haunting the Freedom of Information library.

If there are others who would like to get an answer to a specific question such as that, if they could give their name and the question that they want answered to Ms. Dyer, then we will see that they get those answers at the same time they are sent out to the person who asked the question.

MR. BAILY: Thank you, Mr. Millhone. MS. BUTLER: Karen Butler, from Sears-Roebuck. I understand that a number of companies have requested that DOE extend the deadline for comments on the proposed rule. We are among those people, and I was wondering if DOE is in a position to give us an answer?

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### 41 MR. MILLHONE: The question is on the extension of the comment period. To my knowledge, thus far we have received two such requests, three such requests. As I indicated at my opening comments, it is our current intention to not extend the hearing comment period. However, if there are others who feel as if the comment period is severely limiting their ability to participate in the hearing process, I would like to know so, and that decision hasn't been made in absolute finality.

We are concerned, however, that any extension of the comment period would make it impossible for us to meet the statutory deadline of December, 1980 final standard, and feel as if meeting that.statutory deadline is extremely important in terms of the energy savings that the program will accomplish, and also in terms of the determination of what these standards would be in terms of guiding the affected industry and in certain areas where preemption is a concern.

MS. BUTLER: I trust that in making your decision you will keep in mind that the TSDs weren't available on July 30th, and that a number of commenters have to address all of the standards, and not just some of them. MR. MILLHONE: The comment was that in making the decision on an extension, Ms. Butler would hope that NEAL GRO SS COURT REP O RTERS AND TRANSCRIBERS 1330 VERMO NT AVENUE, NW (202) 234-4433 WASHINGTON, D.C. 20005

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### 42 we would recognize that in her experience there was some delay in getting the TSDs, in their availability. I had thought that they were available at the time or within days of the time through the principal associations.

So, if that information that I have been told is not correct, and if there was a severe delay in your getting that information, I would like to have that as part of a request.

Are there other questions of a general nature? (No response.) I am told that the coffee has arrived, so that we will now take a short break and then get back.

(Recess.) MR. MILLHONE: Let's get back in session. There have been a number of people who have asked if they couldn't get copies of all the questions and answers. We are looking at some way that that might'be done, either by publishing the questions and answers in the Federal Register or by making copies available and distributing them to the people who attend the hearing.

If we make it available to those who have attended this meeting, we would use the names and addresses that you should have put down as you came into the meeting. So, if you haven't done that, be certain to do so. We will give this some further attention, and I 

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### 43 will have an announcement this afternoon at the start of that session in terms of how we will make that information available. My impression from the people who I talked to during the coffee break was that there was a great deal of interest in having answers to these questions.

In addition, the transcript of this meeting will also be available, and at the front table on the suitcase there are some forms that can be filled out by anyone who wants to get a copy of the transcript of the hearing from the reporter. There would be a charge for this, of course.

The break also led to a number of expressions from people who felt that there was a need for additional time during which the hearing should be open, in order to provide them an adequate opportunity to prepare their comments. That sentiment appears to me to be more widespread than I had anticipated it as being.

This question, then, will be considered by DOE within the next several days, and if there are any of you who have feelings for and against such a change, I would ask that you let me or a member of my staff know or send me a note. You could send it to the people who areidentified, the addresses on the notice of proposed rulemaking, or directly to me. 

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2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 I believe that takes care of the opening comments at the start of the second part of this meeting.

The second general category of questions dealt with economic matters, and we will now have the questions and answers in areas that were received in that particular

area. Mr. Pomeroy will handle that category.

MR. POMEROY: Good morning. My name is George Pomeroy. There are approximately 39 answers to questions which have been submitted on the economic aspects of the rulemaking.In certain cases I have taken the liberty of paraphrasing the questions for clarity.

The first question states: How does DOE justify the exorbitant expenditures of time and money, by the government and industry, in setting standards when they result in great sacrifice of future industry development and progress?

The answer to that question is: The proposed standards were evaluated for economic justification. For some product classes no standard was set and for others the level of standard was reduced to lessen impacts on manufacturers.

DOE has determined that the proposed level of standards provides a large net benefit to consumers and

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### 45

the nation overall, both in dollars and in energy saved.

Furthermore, analysis shows the industry to remain competitive and profitable after standards. The justification procedure is described in detail in TSD No. 4, "Economic Analysis."

The second question: Is the 750 hour usage time for room air conditioners as used in the economic analysis consistent with the DOE statement that "no region of the nation is impacted more severely than another" when the actual range between regions is 250 to 2,000 hours? Reference, TSD No. 1, the draft of regulatory analysis. The answer to this is: The only way to ensure that there are minimal differences in regional life cycle cost impacts is to impose regional rather than national standards. DOE has determined, however, that regional standards are not justified due to large appliance price increases resulting from expected increases in the number of product models offered.

The statement on page 5-6 of the draft regulator analysis was incorrect. Regional differences in life cycle cost impacts for HVAC equipment were calculated and presented on page 3.32 of TSD No. 4.



### DOE finds these regional differences acceptable.

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### 46 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 In nearly all cases standards will reduce the life cycle

costs even in regions with very low product usage.

Next question: What has DOE done to evaluate the negative economic impact on the U. S. appliance industry associated with foreign competitors who will avoid the cost of developing standards, thus enabling them to introduce lower priced products?

Answer: DOE has not made a detailed evaluation of the economic impact of foreign competitors on consumer product manufacturers. However, based on available data, foreign manufacturers of the eight product types currently represent an insignificant share of the U. S. market.

In order to fully analyze their impact, DOE would need detailed information on the market shares and manufacturing costs of foreign competitors to U. S. firms. DOE would appreciate receiving any available information from the appliance industry.

Question: Did DOE receive data from manufacture: indicating that some products would be commercially available in 1986 at or above the proposed standard level? Answer: information obtained from the industrywide survey, Form CS 179, indicated that some products projected to be commercially available in 1986 would meet or surpass the proposed 1986 standards. In fact, some 

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2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 products sold in 1978 meet or surpass the proposed 1986

standards. Question: Have any studies or market surveys been made to determine consumer reaction to models that will be available at the 1986 standard levels and the prices they will have to pay? Will they postpone purchases and defeat the program?

Answer: Both analytical studies and market surveys were conducted to determine consumer reactions to more energy efficient products. Consumer demand for efficient appliances was formally investigated in the Oak Ridge National Laboratory residential energy use model

The model simulated changes in consumer purchasing patterns based upon changes in fuel prices, appliance prices and income. This model was updated to reflect the best current survey data available on consumer pruchase and use of appliances.

Question: Why was the payback period calculated on straight energy savings without discounting as was done with life cycle costs?

Answer: Consumers will pay higher purchase prices but lower energy bills on more efficient products. There are several ways of viewing this impact. DOE believes that discounted life cycle cost changes reflect the true cost benefit tradeoff to consumers. 

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### 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 48 However, consumers often make purchase decisions based on simple payback criterion. Therefore, simple payback was provided for each product class to provide additional insight into consumer impacts.

Question: Considering the current economic crisis related to American industrial productivity, what is the basis for DOE's rationale concerning the employment of 30,000 additional people in this industry to achieve the same production level as was achieved prior to the rule? Isn't this inflation?

The answer is: The 30,000 increase in employment refers to the total increase in employment throughout the economy, not the appliance industry per se.

With standards at the proposed levels consumers will receive the same product service at lower cost, thereby having more money to spend on other goods and services. This increase in disposable income will induce the employment of approximately 30,000 additional workers in 1986, and 220,000 additional workers by the year 2000. Question: Given the current economic slump and especially the rise in price of home heating oil, why was the production volume for each product class, especially oil heating equipment, assumed to remain constant at 

### 1978 levels?

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### NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1330 VERMONT AVENUE, NW WASHINGTON , D. C. 200051 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 49 Answer: In spreading fixed production costs for more energy efficient appliance, market shares and production volumes in 1978 were used as described in the engineering analysis, TSD No. 5. This is because no defensible market share projections exist for specific product classes.

For the economic analysis, however, only fuel specific product type shipment forecasts were needed. The economic analysis does assume that product market shares change over the forecast period. Appliance shipment forecasts are displayed in TSD No. 4, economic analysis. Question: Like gas horizontal non-weatherproof furnaces, the number and size of current oil fired forced air furnace manufacturers are believed to have been misstated. In both cases, the number and size of manufacturers will affect DOE estimates of the economic impact to companies and consumers alike. How was the information. obtained? Were those companies who brand name products segregated out and the original equipment manufacturer identified?

Answer: Estimates of the number of classspecific manufacturers were obtained from trade associations and conversations with industry representatives. See engineering analysis, TSD No. 5, page D4-25. Where 

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### 50 appropriate, product labelers and the original equipment manufacturers were identified,

Question: The draft regulatory analysis on page 2-2 refers to a DOE cost book. What is contained in this book? Is this book available? If so, where?

Answer: The DOE cost book refers to the engineering analysis, TSD No. 5. The engineering analysis contains estimates of the production costs of achieving various levels of energy efficiency. This document is available from DOE, as are the other technical support documents. Question: How were the figures for energy use, energy savings and net present value for fuel and equipment derived in Table 2-2 and page 2-4 of the draft regulatory analysis? Answer: Section 2.1 of the draft regulatory analysis describes the inputs to the Oak Ridge National Laboratory energy use model used to compute energy use, energy savings and net present value for fuel and equipment Further description of the model and how it computes these outputs is contained in Appendix E of TSD No. 4, economic analysis.

Question: How did DOE derive a 0.79 to 1.59 quadrillion BTU annual energy savings depicted on pages 3-13 of the draft regulatory analysis and what are the

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2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 figures for each appliance type? Answer: These energy savings were calculated using the Oak Ridge model previously described. The model projects annual energy savings over the period 1982 to 2005 for each individual product type. A more extensive discussion of this model may be found in the economic analysis document.

Cumulative energy savings by product type are presented in Table 4-2 of the draft regulatory analysis and in figure 5.5.1 of the economic analysis.

Question: In discussing the methodology for analyzing economic impacts of the proposed standards on the nation, page 4-1, draft regulatory analysis, DOE lists "reasonable energy savings to the nation." What quantitative data did DOE use in determining a reasonable energy savings for each covered product?

The answer is: "Reasonable energy savings to the nation" refers to the requirement by Congress that standards result in significant energy conservation.

For product types, this has been determined to be 2.867 trillion BTUs per year. For product classes, significant energy savings is 102,390 BTUs per year for each unit. A rationale for this determination can be found in Section 6.3 of TSD No. 4, economic analysis.

Question: DOE assumes that there will be little

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2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 impact on socio-economic factors from the consumer product

efficiency standards program. Life cycle costs may decrease under the program, but can lower income families afford the higher initial purchase price and increased financial cost?

Answer: TSD No. 4, economic analysis, addresses whether or not the poor are severely affected by purchase price increases associated with increasing appliance efficiency. When all products are combined, the aggregate purchase cost increase experienced by the poor is less than 0.2 percent of their median disposable income. Therefore, on average the impacts are extremely small. Refer to Section 5.6 of the economic analysis.

Question: Is DOE's initial purchase price premium of seven percent to nine percent on CPES units or units subject to standard in 1986 realistic?

Answer: The methodology for estimating purchase price increases for appliances at alternative levels of regulation is described in TSD No. 4. The average price increase from the baseline 1986 appliance is computed to be 8.4 percent. Purchase price increases expected to result from standards are in the range of $10 to $30 per unit for most products.

Question: DOE estimates that appliance life expectancy may improve as a result of the standards

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### I 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 53 program, page 3-32 of the environmental assessment. What studies support this claim?

Answer: Since 1972 there has been a gradual increase in energy efficiency for many of the covered products. At the same time, the reliability of these appliances has generally been improving.

Although higher efficiencies do not necessarily create improved reliability, higher efficiencies have not been shown to impair product life expectancies. The economic analysis assumes that standards will have no effect on the service lifetimes of appliances.

Question: DOE admits that medium-size and small size manufacturers will suffer most from the proposed standards. Does DOE foresee the elimination of some of these smaller firms, thereby paving the way for potential antitrust action against the larger surviving appliance manufacturers?

Answer: The potential for anti-competitive effects resulting from appliance standards is presently being reviewed by the Department of Justice.

However, the appliance market currently is extremely concentrated with the largest firms holding more than 90 percent of the market share of nearly all types of products. 25 11 The elimination of some small firms, as presentey

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I 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 in TSD No. 4, economic analysis, will not appreciably

increase the market share of large firms either singly or taken as a group.

Therefore, DOE does not foresee any deterioration in the competitive nature of the market or the potential for future antitrust action.

Question: The proposed rule indicates that 58 firms comprise the central air conditioning industry. Can a list of these firms be obtained? Where did DOE obtain lthis list?

Answer: Section 4.0 of the proposed rule indicates that 58 individual firms and major plants comprise the central air conditioning manufacturing industry. This list was developed from ARI and published sources and verified by consultation with the identified manufacturers. This list is available from DOE on request. Any comments or revisions to this list are encouraged.

Question: In performing the economic impact analysis on individual manufacturers, did DOE consider the overall impact on individual manufacturers making more than one of the covered products? Was the aggregate economic impact on such firms analyzed?

There were two questions with regard to this subject.

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In order to fully evaluate this issue, DOE would need a large set of data covering assets, production facilities and funds flow at the line of business level. This information has been requested from the industry, but was not received in sufficient detail for a defensible analysis. Additional information on line of businessactivities and product division interactions for multiproduct firms is requested.

The analysis of divisional interactions within multi-product firms, however, was implicitly addressed by allowing manufacturers to obtain financing funds from any source, including other divisions, as long as the funds could be repaid with estimated future profits. This is described in Appendix A of TSD No. 4, economic analysis.

Question: Section 5.5.1 of the notice indicates that the inflationary impact of the proposal is negligible. What level of inflationary impact would DOE consider to be more than negligible, from an individual consumer NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1330 VERMONT AVENUE, NW (202) 234- 4433 WASHINGTON, D.C. 20005

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 standpoint and from an individual company standpoint? Answer: The impact of inflation on consumers is commonly expressed in terms of the erosion of overall purchasing power of the dollar. The Gross National Product price deflator is a standard measure of purchasing power and was chosen for this analysis because of its comprehensiveness and familiar properties. Macro-economic simulation of the EXPOR-MULTITRADE model, which is our macro-economic simulation model, indicates that this measure does not show a statistically significant change.

Aggregate appliance purchase price increases, the value of fuel savings and indirect effects on overall economic activity were considered together in computing inflationary impacts. You can get more detail on this from TSD No. 4, economic analysis.

Question: How did DOE calculate that there are some 1,500 basic models of central air conditioners? Is this an estimate of the number now being sold, or the number which will comply with the proposed interim minimum standard?

Answer: The Air Conditioning and Refrigeration Institute, ARI, estimates that as many as 20,000 basic models of central air conditioners could be identified if basic models were narrowly defined. Based on additional ARI and DOE analysis, this large number reduces to 1,500

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5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 basic models which must be tested since each condenser

unit needs to be tested only with the evaporator coil having the largest sales volume.

Question: What procedure or method was used by DOE in projecting the model mix within each product class with regard to shipments, changes in energy consumption, efficiency, et cetera?

Answer: The Oak Ridge National Laboratory residential energy use model projects estimates of appliance demand and energy consumption with and without standards. This model assumes that fuel switching can occur for product types, but that the market shares of classes within fuel specific product types remain constant over time. For a description of this model, see Appendix E of TSD No. 4.

The data necessary to forecast product class shipments is not available to DOE. Any data submissions regarding the projection of shifting market shares for product classes will be used in subsequent economic analysis. Question: The discussion of the analysis of the financial impact on manufacturers, pages 4-7 and 4-8 in the NOPR, states that financial data from publicly available sources was used with a certain amount of estimating and/or projecting of data being done; that 

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### 58 firms were classified according to three size groupings, small, medium and large; and that representative firms were selected within each of these classifications. Pleas provide by example or illustration how the generalized financial data was developed to the product type level andwhat criteria were used to classify firms as representative? The answer is: The procedure for estimating the financial impacts on manufacturers resulting from applianc standards is described in detail in Appendix A and Section 5.7 of TSD No. 4.

Question: The NOPR includes extensive material on the certification and enforcement aspects of the minimum standards program. However, the discussion of the cost/efficiency relationships in Sections 4 and 5does not indicate that the cost of testing and recordkeeping that would result from the proposed certification and enforcment program have been included in the increased cost of the product. Were these costs included? Answer: These costs were not included directly in the economic analysis. The additional impact of testin costs is treated in TSD No. 3, certification and enforcement analysis.

DOE recognizes that sample sizes required for

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2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 certification may be larger than those projected in TSD No. 3. Initial estimates of test costs show them to be generally less than one dollar per unit and less than one half of one percent of purchase price. Their inclusion in the analysis would not significantly change any of the economic impact results. These costs, however, will be included in all subsequent economic analyses using the most currently available certification cost data.

DOE solicits information from manufacturers on product variability, test variability, and test costs which will assist in further quantifying certification costs. Question: The shipment-weighted energy factor that is discussed in the NOPR was calculated by weighting the energy factor by the unit shipments of each model. Previously, shipment-weighted energy factors were calculated by shipment-weighting the functional output and the nergy input of each model and using those values asthe numerator and denominator in calculating the shipmentweighted energy factor. Why did DOE change the procedure for calculating the shipment-weighted energy factor?

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2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 of the appliance standards yields a shipment-weighted

mean of the quantity on which DOE will establish a standard, specifically the test procedure energy efficiency factor of an appliance. Other procedures, such. as the one described in the question, may be used for other purposes.

Question: The NOPR explains that a series of alternative efficiency levels were evaluated for each product class for the July, 1981 and the January, 1986 standards. In some instances proposed levels are not the same as the alternative levels that DOE evaluated. Why? In such instances how were the proposed levels evaluated?

Answer: DOE evaluated alternatives within a range of values which appeared suitable candidates for loose or tight standards. The proposed levels fall within the ranges evaluated. In some cases, interpolation between alternative levels was used to tighten or loosen the standard slightly.

Question: The NOPR indicates that a base line unit which had an efficiency level, energy input, functional output and size approximately equal to that of the most commonly produced unit in 1978 was used to determine the specific design options that could be used on the product to improve its energy efficiency. How did DOE identify the design and/or operating characteristics

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already utilized in the 1978 base line unit and therefore not available for future use in improving product efficiency?

Answer: The base line unit, as described in the question, was used as the starting point to which design options were added. Its characteristics and available design options were developed from discussions with manufacturers and examination of units in the marketplace.

Question: Was each potential design option analyzed individually for consumer payback?

Answer: The methodology chosen for evaluating the benefits of design options involves adding these options to a baseline unit in order of cost effectiveness, and then computing the efficiency and cost of the appliance. Each design option was not evaluated directly for consumer payback, although the analysis considers minimum manufacturing costs which imply minimum consumer purchase cost. For more detail, see TSD No. 5, engineerin analysis. Question: The regulatory analysis section of the NOPR indicates that one of the options considered as an alternative to the proposed approach is no regulation in cases where none of the four alternative regulatory levels for 1981 and 1986 or regional standards were NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1330 VERMONT AVENUE, NW (202) 234 - 4433 WASHINGTON, D.C. 20005

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2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 economically feasible. Did DOE consider or evaluate the

flow of more efficient products and the consequent energy savings to be realized through normal market forces and compare the aggregate energy savings, the costs and the benefits to those resulting from standards?

Answer: The "no regulation" alternative did assume that forces other than the appliance standards woul result in energy savings compared with present consumption levels. The factors considered in the no regulation" alternative were deregulation of energy prices, state energy efficiency standards, the FTC labeling program, the DOE public information program, and the building energy performance standards.

Standards at the proposed levels were shown to result in large benefits beyond those realized through normal market forces. For more detail, see Chapter 5.9 of TSD No. 4, economic analysis.

Question: Appliance manufacturers provided DOE, through their respective trade associations, extensiV data on product energy consumption, efficiency levels and unit shipments for 1972 and projected data for 1980 and 1986. DOE appears to have given little consideration to those data. Were they used by DOE?

Now, there were two questions on this. Answer: Industry data obtained through DOE

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2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Survey Form CS 179 was used throughout the engineering

and economic analyses. For example, proposed standards for 1981 were based on the sales weighted average efficiency levels calculated from this data.

Furthermore, the submitted industry data provided the core for financial impact analysis of appliance manufacturers. Industry data, often submitted in aggregated and coded form, were extensively analyzed and developed to provide a detailed data base. A great deal of the manufacturer impact analysis would have been impossible without this data base.

Question: How did DOE treat exports by U. S. manufacturers in the economic analysis of the proposed standards? Did DOE consider the impact of the proposed standards on the competitive position of U. S. products in world markets?

Answer: From discussions with industry sources DOE determined that export of appliances has not been a major source of revenue for domestic appliance manufacturers and that those foreign markets are intensely competitive.

Nevertheless, nothing in the regulations prohibits manufacturers from shipping units not meeting the domestic standard to foreign countries with lower or non-existent standards. It is not expected that foreign operations of domestic producers will provide an

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 increasing source of future revenue to appliance manufacturers. DOE welcomes any comments to the contrary.

Question: Page 4-58 of the economic analysis, TSD No. 4, includes a table containing industry shipments by product type for the years 1978, 1981 and 1985. These are identified on the preceding page as projections of industry shipments developed from the data collected from manufacturers and submitted to DOE through their respective trade associations. There is no explanation as to how these projections were developed or the rationalEfor these projections. Can you explain how these projections were developed?

Answer: The methodology of projection is discussed in detail in Appendix A of TSD No. 4, page A-26. Briefly, shipments for 1978 reflect historical data. Estimates for 1981 and 1985 were estimated using the Oak Ridge residential energy use model.

Question: Page 4-45 of the economic analysis, TSD No. 4, contains a discussion of inventory levels. The following page includes a table containing historical data on inventory levels, and their relationship to the value of the shipments. There is no explanation as to what these inventory levels represent. Are they year-end inventories, averages for the year, or what?

Answer: The inventories reported on page 4-46

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5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 of TSD No. 4, economic analysis, are end-of-year

inventories calculated by the U. S. Department of Commerce, Bureau of the Census.

Question: Page 4-48 of the economic analysis includes a discussion of firm entries and exits. This is supported by statistics on page 4-49 which display the number of establishments by industry classification at various points in time. What is the difference in "establishments" as used by the Department of Commerce in the census of manufacturers, which is identified as the source of these data, and "firms", as used by DOE in the economic analysis? What is the relationship between these? Answer: Data collected and published by the census of manufacturers is specific to small industrial subsectors. The industrial establishments of each subsector are designated by the SIC code.

Four digit SIC data, while encompassing more than the manufacturers of the eight covered product types, was helpful in characterizing the structure and conduct of the consumer appliance industry.

"Firms", as designated in DOE actual calculations of baseline scenario and regulatory impacts, refer only to manufacturers of the covered products.

I have a list of the SIC codes, but I am not

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2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 going to read them into the record. Question: Page 4-42 of the economic analysis, TSD No. 4, displays a series of consumer product price elasticities of demand which are identified as DOE estimates. What information or data was used by DOE as the basis for these estimates?

Answer: The Data Resources, Incorporated data base was used to estimate the demand elasticities reported on page 4-42 of TSD No. 4. That data base contains published information from trade associations on quantities of appliances shipped, Department of Labor wholesale appliance price indices, Bureau of the Census estimates of income levels, and other factors related to appliance demand.

Similar estimates of price elasticity of demand can. be obtained from the Oak Ridge National Laboratory residential. energy use forecasting model, used in much of the economic justification of appliance standards.

Question: The material presently available from DOE makes no mention of an evaluation of the impact of the proposed levels on wholesalers and retailers. Did DOE consider these impacts? If not, why not?

Answer: DOE was not able to evaluate quantitatively the impact of proposed standards on wholesalers and retailers. Insufficient information was available on

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those parts of the appliance industry. However, wholesaleand retail operations appear to be sufficiently diversified that reductions in volume of any one product can be offset by switching to other products. Investment tends to be in the form of inventory space and handling facilities which are adaptable to a wide range of products. Therefore, DOE anticipates the impact on wholesalers and retailers to be small.

If you have comments to the contrary, let us know. Question: The material available from DOE concerning life cycle cost analysis and consumer payback does not specify the level of product usage used in the calculations, so we assume that these are based on average usage factors. Is this assumption correct? Has DOE made similar analyses of life cycle cost and consumer payback for varying degrees of product usage, such. as light users, average users and heavy users?

Answer: National average usage rates were employed in all life cycle cost and payback analyses of consumer products not related to heating or cooling. Since the usage rates of room air conditioners, central air conditioners and furnaces varies as a function of the area of the country where the consumer lives, average regional usage rates as well as national average usage

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5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 rates were calculated for these products. Thus, for heating and cooling appliances two sets of life cycle costs and payback were estimated. See Appendices H through K of TSD No. 4, economic analysis.

Question: The discussion of income inequality on page 3-17 of TSD No. 4 states that DOE has determined that an unacceptable level of impact is reflected by a positive change in the Gini coefficient of at least plus 0.005. What was the basis for this determination by DOE? Additionally, should not this measure be applied to specific product types?

Answer: A description of the method used to determine the threshold level for unacceptable impact on income inequality is presented on page 5-64 of TSD No. 4, economic analysis.

The income inequality measure, as applied to all product types combined, showed appliance standards to have insignificant impacts. To estimate distributional income impacts for each product type individually would show even smaller impacts, which by inference would also be insignificant.

Last question: Have the various contractors that provided the forecasts and/or projections to DOE for the minimum standards program also supplied DOE with confidence intervals or measures of probability concerning 

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5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 their forecasts and projections? Answer: All analyses of impacts performed by DOE or its contractors were investigated for sensitivity to key assumptions. The subchapters entitled "Sensitivity Analysis" in TSD No. 4, economic analysis, contain discussions on the results of those analyses. All national impact estimates such as energy savings and net present value are presented as ranges representing DOE's judgment about potential high and low values of those impacts. MR. MILLHONE: Thank you, Mr. Pomeroy.

I will now open up the meeting for questions from the floor in the economic area. Are there any questions in this area?

As indicated earlier, please state your name. MR. REARDON: John Reardon with ARI. I would like to follow up on the question regarding the 1,500 basic models. That question was raised by ARI and we are not sure how it was arrived at by DOE. To begin with, a definition of a basic model for a central air conditioner in the proposed rule does not speak to the fact that a condensing unit matched with the highest retail sales volume coil constitutes the product that has to be tested to meet the proposed rule provisions. 

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2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 The basic model is interpreted by us to mean every

combination of condensing unit and evaporator or blower coil. So, we have asked that that also be -- that was also submitted as a question.

The other matter regarding the 1,500 basic models that is not clear to us is: Are you considering only those products that are above the proposed minimum efficiency values in the proposed rule, or are you considering all basic models that are now within the DOE covered program?

MR. POMEROY: In regard to your first question on the 1,500 basic models, a basic model for that definition is just the condensing unit with the sales volume coil associated with it. That is what the 1,500 referred to. And what you are saying is that that is not the basic model as described by our certification procedures. Is that true?

MR. REARDON: That is correct. That is not worded that way in the proposed rule.

MR. POMEROY: Vic Petrolati is going to answer this question.

MR. PETROLATI: Mr. Reardon, you are correct that the proposed rule as currently written does not allow the condenser-coil combination. The intent was to allow

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### 71 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 it as it was allowed on units to be tested under

section, I believe, 323 of the test procedure. The intent, again, was to allow that type of combination.

So, the 1,500 was derived using the condenser and coil combination as the unit to be tested.

MR. REARDON: Okay. MR. PETROLATI: Now, the second part of your question about the 1,500 basic models, that 1,500 was derived at from all models that currently are in existence, not those just above the standard.

MR. MILLHONE: Mr. Reardon, do you have a follow-up question?

MR. REARDON: No. I will pick it up under the certification and enforcement.

MR. MILLHONE: Okay. Do you have a few questions there?

MR. REARDON: That was the two questions. One was the definition of the basic models to clarify that, and the other one was, were you including all basic models or just those that are currently above the proposed value. MR. MILLHONE: Fine. Thank you. I believe we have dealt with those.

Are there other questions on the economics? Yes MR. WEIZEDRICK: My name is Jack Weizedrick. I

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2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 am with ARAM. I would like to return briefly to the shipment-weighted energy factor again.

I believe I heard the statement that the shipment weighted average energy level was used for computing the data base. The shipment weighted energy factor which was submitted in the aggregate data was computed on one method. Was the data base which you used, did you recompute that using the formula used in the NOPR? MR. POMEROY: The answer is yes. We simply took the efficiency factors as submitted by the industry through Form CS 179 and made a shipment weighted average of that factor as submitted. So, it didn't have an enumerator and a denominator input-output.

MR. MILLHONE: Any further questions, Mr. Weizedrick?

MR. WEIZEDRICK: Just a follow-up question. Would you have any idea of the effect of the different methods of calculation on the final values?

MR. MILLHONE: I guess it is not clear to me what you mean by different methods of calculation.

MR. WEIZEDRICK: Okay. The way it was computed originally, I guess, developed by the Department of Commerce, was that the enumerator was summed and a denominator was summed independently, and then divided in

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2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 order to come up with shipment weighted energy factors, The methodology in the NOPR uses an energy factor which is a division in itself, and sums the energy factors in enumerator and merely sums the shipments in the denominator.

MR. POMEROY: I can't say that we have done any studies, to my knowledge, of the difference between the two methods of deriving shipment weights. I am also not familiar with where in our rulemaking proceedings we have used that particular method you are mentioning.

MR. MILLHONE: I am going-to ask Mr. Raap to alsc deal with that question. Mr. Raap.

MR. RAAP: Yes. The point being that there may be an error in the NOPR on how we calculated our shipment weighted energy factor. Mr. Weizedrick pointed out that a past method that has been used by the Department of Commerce does exactly what he says, sums the numerator and sums the denominator, where we just summed the resulting energy efficiency, that you do not get the same answer. There is an inconsistency.

If our shipment weighted energy factor calculation is incorrect, all the proposed levels would essential be incorrect also and would be adjusted to the right numbers.

25 11 I don't know presently which method is correct,

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2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 but there is an inconsistency in how AHAM determines shipment weighted effect and how we did it in the NOPR.

If there is an error, the numbers will have to be adjusted. All shipment weighted -- the proposed levels, to be consistent with the analysis, would have to be adjusted. And we are currently looking at it. That is all I can say.

MR. WEIZEDRICK: Thank you.. MR. MILLRONE: Mr. Weizedrick, I appreciate your comment on that question. One of the values of a public meeting like this is that some of these issues that more often are frequently associated following the public hearing process get surfaced early so we can have a chance to take a look at them.

Mr. Langmead. MR. LANGMEAD: Thank you. I have got one question, I think, that falls here and not in the product specific area.

That is, there are some products that use gas for their source of energy and require no electricity. In several cases the design options discussed in the rule would require bringing electricity to the site of the gas appliance.

What was the cost of bringing electricity to the location of the gas appliance assumed to be in homes that

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10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 are existing today? MR. MILLHONE: Mr. Langmead, as I understand it, what you are saying is that there may be electric service hook-up costs that would be associated with certain products. Could you provide some specific examples?

MR. LANGMEAD: Two examples are gas ranges that have no electrical supply cord, and the other example is gas water heaters where the report and discussion talks about the use of flue dampers, not, vent dampers -- flue dampters, which is a considerable difference, and intermittent ignition devices. Neither one of those products -- not all ranges have electrical supply cords, not all gas ranges, and no water heaters have electrical supply cords at the present time.

MR. POMEROY: Mr.-Langmead, in the economic analysis we try to estimate the,,-'penetration and the shift in the penetrations of prodiAtts and .the shifts in demand over time in the future. We. donpt encourage consumers to purchase gas or electric p:roducts'.

Assuming a consuum^er purchases a product, we are trying to create the.condition whereby that product will be more efficient than it would be without standards.

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### 76 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 to standard as opposed to the energy consumption of a product with no standard.

MR. LANGMEAD: Mr. Pomeroy, let me try toexplain my question, because obviously you don't understand it. MR. POMEROY: All right.

MR. LANGMEAD: The product is in place. There is a range in a kitchen. There is no electrical supply in the vicinity of the range. If a range is bought with an intermittent ignition device, it must have to be wired in, in according with the National Electric Code, an electrical outlet within about four feet of that range location. It cost somewhere in the neighborhood of $100 to spot. 150 to bring that electrical supply to that

I am saying, by requiring electric ignition on ranges that is going to be a requirement of installing a gas range in an existing home.

MR. MILLHONE: I think we understand the question now. You are saying that where an ID Is required in order to meet the standard, has the cost of providing the electricity to the vicinity of the product been considered as part of the product cost.

MR. LANGMEAD: That is correct. MR. MILLHONE: Mr. Raap is going to address

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 that question. MR. RAAP: You are correct that in the gas ovens the intermittent ignition device with electric power, the cost to provide electricity to that gas stove was not included in the design option analysis. On the other hand, the water heaters, if you look at the design options for 1986 levels, intermittent ignition or any electric power is not required. It is only insulation, heat traps and improved heat transfer. No intermittent ignition, or no requirement for a flue gas damper. That is not an option.

MR. LANGMEAD: That appears to be a little inconsistent with what is in the preamble of the rule, though. MR. RAAP: Well, you had better read the technical support document.

MR. LANGMEAD: I have, thank you. MR. MILLHONE: I guess I have a question here. It would seem to me just as a practical matter, in many instances where a range would be located there would be a switch that would be nearby, so that this wouldn't be something that would necessarily be a cost that would be attributed to each application of the new appliance. Do you have any information on how frequently additional electrical hookups would be needed?

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### 78 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. LANGMEAD: I am trying to determine the

specific information. I would request that DOE check with the Department of Housing and Urban Development and their federally financed homes, because I have received numerous calls about where am I going to get ranges to go into these locations that don't have electricity supply in existing buildings. The predominant area, New York City, Chicago, high apartment areas,

MR. MILLHONE: We will look for that information. If you can come across any information that would be helpful, I would hope you would do so also.

MR. LANGMEAD: I will provide you a man's name over there.I have another question, and that is, on page 4-3995 of the proposed rule DOE states that there are some firms not able to successfully finance compliance with the standards by means of funds from earnings or loans, and may be able to use other methods such as the sales of stock bonds, transfers of funds from other operating divisions, et cetera.

My question is: How does that conclusion, that they may be able to get funds from other sources, reallyaddress and answer the economic burden on small manufacturers? I am trying to relate those, and can somebody shed some light on that issue? 

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MR. POMEROY: We are interested in determining whether or not firms producing products now can, after standards, remain in business producing products. Now, if they are going to have to change their production processes, they are going to have to pour some additional money into tooling and investment and various other costs to produce more efficient products. There will be some increment over their present investment plans in many

cases. What we tried to do is for different size manufacturers estimate what these increased costs were, using largely the TSD No. 5 technical support document information, and then determine whether or not a representative firm, a representative small firm, as was defined in Appendix A of TSD No. 4, economic analysis, can repay that additional investment or retooling cost.

Now, the reason we wanted to know or we made the assumption that they could get the funds from wherever, from other divisions or from loans, is we were just interested in determining, are they going to have enough money over the next or through the 1988 period to pay back whatever that increased cost is, That was basically the strategy taken in the analysis.

MR. MILLHONE: I might add to that a bit, because that was one of the areas that we were most NEAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1330 VERMONT AVENUE, NW (202) 234-4433 WASHINGTON , D. C. 20005

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 concerned about in developing the proposed standards. At least as I understand it, Mr. Langmead, what happens with the regulation is that the effect of the regulation is to change some of the operating conditions within a given industrial market operation, and that any time you have a change and it is a highly competitive area there are some firms who benefit from that change and some firms who don't.

What we tried to do in that area of the NOPR is describe what some of the effects of the regulation might be. Now, if you look at it in a sort of sterile computer printout fashion you get certain results, but the real world has greater variability than that. So, what we wanted to do in the language that you quoted was just talk about some of the other adjustments that could take place with a firm that was adjusting to the existence of regulations. And some of the things that we describe there, such as obtaining funds from some other source or some other division, or some kind of managerial ingenius reaction that the computer model wouldn't pick up, what we wanted to indicate was that there are these kinds of things that would take place, we would anticipate would take place, and that these would affect the ability of a firm to adjust to the changed circumstances. 

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2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 I would also say that there may be some firms that would benefit and therefore be able to stay in business more effectively as a result of the regulations, say, a firm that is already manufacturing a more efficient product, so that it is placed in a relatively competitive advantageous position as a result of the regulations.

So, I think that the effect will be that there will be some firms that will benefit and some firms that will have more difficulty as a result of the regulations, and this language that you refer to deals with that particular problem.

The larger analysis indicates that the nation as a whole and consumers benefit as a result of the proposed regulations, so that the net benefit is advantageous.

MR. LANGMEAD: Do I understand your answer, then, basically being, if I can shorten it and see if I have got it in the right words, that the statement in the notice was not intended to be justification or support for the fact there would be no adverse effect on small business, but it was an explanation that there may be some other way to solve their problems?

MR. MILLHONE: That is right. MR. LANGMEAD: One other statement, rather than a question. In the response to a question that indicated

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I 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 the number of horizontal furnace manufacturers and oil furnace manufacturers, the response indicated that that information came from discussions with trade associations. Being with GAMA and representing the trade association of those products, I don't ever remember being asked that question specifically on product type.

The information you have in the notice of proposed rule on the number of companies is incorrect. I will furnish you with more accurate information, to the best of my knowledge.

MR. MILLHONE: I remember that question. Let me see if I can find it.

MR. LANGMEAD: It was near the beginning. MR. POMEROY: You are just making a general statement that you believe the number to be incorrect and you have better information?

MR. LANGMEAD: I believe so. MR. POMEROY: Really, we are interested in any information on the market shares of these various classes. Now, to the best of our abilities we tried to identify what those market shares were, and the results of that are presented in TSD No. 5, the market shares for the different products in 1978.

If you can provide us with updated or corrected information, we would be happy to include it in any N EAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1330 VERMONT AVENUE, NW (202) 234-4433 WASHINGTON , D. C. 20005

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2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 additional analysis for the final rules. MR. LANGMEAD: It was question No. 9, and I wasn't talking about market share. I was talking about number of manufacturers participating in making that product class.

MR. MILLHONE: I have found the question now, and I understand your question with regard to it. And although it was not dealing specifically with market shares, the answer that Mr. Pomeroy gave was correct in the sense that if you have better information in this area we would certainly hope that you would give it to us. If there is information that is available immediately in this area, I would urge that GAMA provide information at this time or as quickly as possible, and not feel that it has to wait until its presentation of all of its comments on the rules before it provides information on an area like this.

MR. LANGMEAD: On the other hand, Mr. Millrone, I would like to request that DOE provide me with where it got the information to get that answer, and who made that assumption, and on what basis.

MR. FURLONG: Just give us the right answer. MR. LANGMEAD: I will do both. MR. MILLRONE: As I believe you are aware, we have relied on information that we have obtained from the N EAL R. GROSS COURT REPORTERS AND TRANSCRIBERS 1330 VERMONT AVENUE, NW (202) 234

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trade associations, as well as information from many other sources, as well. If the information in this area, you feel, is inartfully attributed to the trade associations, we would like to know any information on this subject that you can help us with. Meanwhile, we will look at other sources as well and try to find better information in this area and identify it as an area that needs to be checked. MR. LANGMEAD: I just want to isolate the differences between what you think the industry make-up is and what we do.

MR. MILLRONE: I appreciate that. MR. LANGMEAD: There may be a difference. MR. PITSCH: My name is Peter Pitsch, and I am with Montgomery Ward.

DOE's draft regulatory analysis determines that the present value of the net benefit to consumers exceeds the benefit that would accrue from taking no action. My question goes to the clarification of how that analysis figures in the economic analysis. For example, if the reverse was true -- that is, the present value of the net benefit from taking no action exceeded that of the proposed standards, would DOE conclude that the proposed standards were not economically justifiable? NEAL R. GR O SS COURT REPORTERS AND TRANSCRIBERS 1330 VERMONT AVENUE, NW (202) 234- 4433 WASHINGTON , D. C. 20005

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2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. POMEROY: Yes. MR. PITSCH: Okay. One further question. Does DOE see its burden under the statutes, the authorizing statutes, and President Carter's Proclamation 12044, does DOE see those directives requiring it to demonstrate that the benefit from the proposed standard will exceed the benefits from taking no action?

MR. MILLRONE: Let me answer that question. As I understand the question, that is one of the requirements and that is an issue that is dealt with in the regulatory analysis particularly.

MR. PITSCH: Fine. I just want to make clear that DOE sees the regulatory analysis, particularly of the no action alternative, as being encompassed in a definition of the statutory requirements, that the standards be economically justifiable.

MR. MILLRONE: I understand the question, and I think we have answered it. If there is something that you are driving at that is not apparent -- it sounds like you are trying to establish the basis for a later challenge. MR. PITSCH: Well, a good cross-examination technique, I am told, is to establish various points early on and then sum them up later on.

MR. MILLRONE: Yes?

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2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 MR. BAILY: I am Ted Baily, with Carrier. I am encouraged by Mr. Pomeroy's comments that DOE does not consider regional standards to be justified. Can we rely on your comment to mean that regional standards will not be included in the final rule for 1981 and 1986, and just devote our limited time and energies to commenting on things other than regional?

MR. MILLRONE: I can answer that question. We have given a good deal of attention to the issue of regional standards, and DOE's position at the present time, as stated by Mr. Pomeroy, is that regional standards would not be desirable in '81 or in '85-86 period. We do identify that as one of the issues on which we would solicit comments in the hearing process, so I wouldn't want to, without having had the benefit of any comments that might come in on that issue, say that DOE categorical will not in the final standard consider regional standards. But the strong leaning from DOE at the presenttime is that regional standards would not be desirable inthe '85-86 period, and I would recommend that Carrier spend its time dealing with other aspects of the proposed rule.

(202) 234-4433 MR. BAILY: Thank you very much.

MR. MILLRONE: Yes, Mr. Reardon. MR. REARDON: John Reardon again. I would like

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### 87 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 to pick up on a question that has been answered that we had asked, and that is the question of 58 central air conditioning manufacturers.

In picking up on your comment just a few minutes ago, Mr. Millhone, to Jack Langmead from GAMA relative to the gas manufacturers, you indicated that you would like him to respond to you rather quickly on that and not wait for the written comments. Is that correct? MR. MILLHONE: My answer was, and it will be the same for you, as well, that if there are comments that you can give us right away that you think would help us in our ongoing work, give those to us now and do not wait.

MR. REARDON: Well, we can plan on trying to give it to you before the hearing. But what I would like to request is that you provide us with the names of the 58 companies as soon as possible, and also give us an indication as to how many of those companies the contractor actually determined to be a manufacturer, as opposed to being a private labeler.

We are not only concerned about it in that respect, but we are concerned about it in responding with our counter-proposal relative to industry certification programs whereby we have indicated to DOE that for air conditioners we are presently including over 98 percent 

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 of the sales volume in the country. But the question raised by the general counsel's office to DOE is that we are not covering all manufacturers. We have had a difficult time arriving at a true list of central air conditioning manufacturers, and if we could use your 58 companies as the authoritative list, then we will be able to respond to that question as far as participation in the voluntary industry program.

So, I am requesting that you provide us with that list and as much background as to how it was compiled as quickly as possible, so that we can respond to you prior to the hearing and our written comments.

MR. MILLRONE: That would be regarded as a question that is relevant to the questions that we have already been talking about, that you are asking at this time. MR. REARDON: Correct.

MR. MILLRONE: I see that as a little bit different from the discussion I had with Mr. Langmead in terms of information that GAMA might provide, but I think that it is appropriate for you to ask that question. I am concerned that we have a record in this matter that putsall of the information that is relevant in terms of anyone's comments into the public arena so that they will know what is there. So, if something like this were done, 

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I think what we would do in, particularly, areas that are critical like this is publish it in the Federal Register in some way so that it would be part of the public record. MR. REARDON: Well, regardless, we would still turn around and include it in our statement as part of the public record.

MR. MILLRONE: Does general counsel have any comment on this procedure?

MR. MARGOLIS: No. MR. MILLRONE: Fine. Are there any other questions that deal with the economic aspect of the proposed rule?

MR. BRANCHEAU: Hello. I am Harry Brancheau from Belding Products. I have two questions as kind of a follow-up to Mr. Weizedrick's comments regarding the apparent discrepancy in calculating the weighted energy efficiencies used to determine the minimums.

The first is, basically, what time frame do you expect to make the decision as to which methodology is correct? Number two is, when can industry expect, assuming the AHAM methodology is correct, the revised minimums, because this will impact any possible future correspondence and comments regarding minimums and their NEAL R. GRO SS COURT REPORTERS AND TRANSCRIBERS 1330 VERMONT AVENUE, NW (202) 234 - 4433 WASHINGTON, D.C. 20005

### 90 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 economic impacts? MR. MILLRONE: What I would like to do is just ask Mr. Raap how large a matter is this and how quickly do you feel it could be dealt with? We will get an answer to you right away, but we need to have a brief huddle. (Caucus.)

MR. MILLRONE: Are there further questions after this question?

(No response.) Okay. I think that after we deal with this matter, then we will take the lunch break. It will probably be 12:20 or something like that by the time we break. Why don't we plan on getting back here at 1:30. We will plan on starting again at 1:30, and those of you who are in suspense regarding the answer to this question, I will have the envelope in just a minute.

(Caucus.) MR. MILLRONE: I will ask Mr. Raap to rap with you on that question.

MR. RAAP: I am now the expert on shipment weighted energy factors.

Granted, there are two ways of calculating it, each is correct for its own purpose and as described to me by our economic expert, who derived this, that the

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 way we calculated for our purposes is correct and is valid, and will not be changed, due to the requirement for us to measure the impact on the manufacturers' shipment weighted line and not a target approach or a weighted BTUs. We are going to maintain that our procedure is correct for our purposes, and that AHAM's procedure is correct, but for a different purpose.

So, the levels will stand as is. MR. MILLRONE: Loren, can you give us any .idea of what the difference in the result applying the two approaches would be?

MR. RAAP: The difference will usually be on the order of five percent or less, but it is dependent on the number of shipments associated with each particular class. So, it is not a straight three percent all the way through. It will depend definitely on the weighting. But in general it will always be a lower number, AHAM's approach. But we maintain that our procedure is correct for our purposes. It is not intended to measure an efficiency of a product line. It is intended to measure the impact on manufacturers. So, it stands as is.

MR. MILLRONE: Thank you. We will now take a lunch break and be back at 1:30.

(Whereupon, at 12:20 p. m., the meeting was recessed, to reconvene at 1:30 p. m., this same day.)

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C£ h l iy .. C A T E

This is to certify that the attached proceedings in the aforecaptioned matter were held on 

### July 16, 1980 and that this is a true and accurate record thereof and that this is the origi nal transcript thereof

.

N L R. GRO S

(2021 .234-4433 

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