DOE Convening Report on Certification of Commercial HVAC and CRE Products, October 2 , 2012

1 

### U.S. DEPARTMENT OF ENERGY

CONVENING REPORT

ON


### THE FEASIBILITY OF A NEGOTIATED RULEMAKING

TO REVISE THE CERTIFICATION PROGRAM FOR COMMERCIAL HEATING,

VENTILATING AIR CONDITIONING AND COMMERCIAL REFRIGERATION EQUIPMENT

October 2 , 2012

Alan W. Strasser, Esq., MA

Convener

On detail to : Office of the General Counsel U.S. Department of Energy (GC-71) 1000 Independence Avenue, SW Washington, DC 20585

From: U.S. Department of TransportationDOE Convening Report on Certification of Commercial HVAC and CRE Products, October 2 , 2012

2 

### I. E XECUTIVE 

### S UMMARY

There has been some disagreement and confusion surrounding DOE’s current regulations for the certification of commercial heating, v entilating, air conditioning, and r efrigeration equipment. DOE therefore thought it would be appropriate to review this program. Since it had recently had

c onsiderable s uccess us ing ne gotiated r ulemaking i n de veloping a nother c omplex r ule, 1 it

decided t o consider its us e f or t he r evision a nd a dministration of t hese r ules. Other af fected interests likewise believed that it would be appropriate to use a collab orative approach to address

them. DOE announced on July 10, 2012, that it was exploring the feasibility of conducting a reg neg to revise the certification regulations for these commercial products.

This report, based on a confidential interview process involving forty (40) parties conducted by a neutral co nvener, 2 analyzes t he f easibility of r esolving t hese i ssues ut ilizing c onsensus

- based negotiations between the significantly affected parties.

The parties agreed w ithout e xception t hat t he s cope of t he r ulemaking should be s ignificantly broadened be yond t he i nitial pr oposal. R eg ne g i s t he pr eferred pr ocess f or t he und ertaking compared to an ordinary rulemaking process since it is a more effective means of addressing the complex technical issues involv ed. M oreover, t he process can h elp r epair what m any s ee as a strained relationship between the industry and the Agency. Given these considerations, it is far less l ikely t hat a r eg n eg l imited t o t he pr oposed s cope w ould r each a consensus, a lthough i t

coul d s till pr ovide he lpful i nformation a nd i deas. It i s i mportant t o not e t hat t he s cope i ssues described in relation to a potential reg neg are applicable regardless of whether DOE uses reg neg or ordinary notice and comment rulemaking. For purposes of this analysis, if the scope is broadened, t he c hances of r eaching a c onsensus us ing a r eg n eg a re greatly e nhanced, for t he

reasons discussed below.

After the introduction below, section III is organized by party type, followed by the issues that each party found most important and the ir position on that issue.

1 In the Fall of 2011, the DOE initiated a formal negotiated rulemaking with key parties in hopes of negotiating energy conservation standards for three types of distribution transformers. The months

- long effort culminated in a Notice of Proposed Rulemaking for all thr ee types, with one of the three being proposed at a level negotiated by the

committee. For additional background see discussion titled, “Open to Negotiations to Address Energy Efficiency,” section II, below.

2 When DOE announced this convening, it assured the parties that the convener would be neutral and independent. DOE a lso e xplained t he i mportance of confidentiality a nd e stablished r igorous pr otocols t o ensure, a mong ot her things, t hat D OE staff d id not c ommunicate with t he c onvener. D OE ha s firmly a dhe red to th ese p rinciples throughout the process. For more details on DOE’s public statement on confidentiality and other matters regarding negotiated rulemaking, see Appendix C, below. Aris Marantan, Ph.D.

, provided invaluable technical support during the i nterview p rocess a nd was a n i ntegral p art o f t he c onvening t eam. Alan S trasser, ho wever, i s ultimately responsible f or th e r ecommendations i n t his r eport. P hilip J . H arter, A lan’s former c olleague a t T he M ediation Institute, also provided key process insights that improved this report.DOE Convening Report on Certification of Commercial HVAC and CRE Products, October 2 , 2012

3 

### II. I NTRODUCTION

I NDUSTRY P ROFILE

The e quipment c overed i n t his r eport i ncludes c ommercial refrigeration e quipment ( CRE), commercial h eating, v entilating a nd a ir

- conditioning e quipment (HVAC), commercial w ater

heaters , an d co mmercial b oilers

. For or ganizational pur poses, c ommercial w ater he aters a nd commercial b oilers ar e grouped t ogether with ot her c ommercial H VAC pr oducts

. Commercial products, as discussed in this report, are those not manufactured or intended for residential use.

• CRE covered i n t his r eport c onsists of s elf

- contained co mmercial refrigerators, fr eezers, and re frigerator

- freezers; r emote co ndensing c ommercial r efrigerators, f reezers, an d refrigerator

- freezers; ice

- cream freezers; and self

- contained commercial refrigerators with transparent doors designed for “pull-down” temperature applications.

• Commercial HVAC covered in this report consist of three subsets:

o S mall, la rge

, and v ery l arge co mmercial p ackage ai r

- conditioning a nd h e ating equipment, packaged terminal air conditioners (PTACs), packaged terminal heat pumps (PTHPs), and single package vertical units.

o Commercial w ater he aters consisting of co mmercial w ater h eaters, co mmercial unfired hot water storage tanks.

o Commercial bo ilers includ ing commercial hot w ater s upply boilers and commercial packaged boilers

.

According to DOE’s 2012 Buildings Energy Databook, the annual primary energy consumption for all commercial refrigeration, ventilation, space heating and space cooling ( Figure 1 ) accounts for about 8.44 qua drillion Btus of energy, or 46.2% of the total primary energy consumption in commercial buildings in the US.DOE Convening Report on Certification of Commercial HVAC and CRE Products, October 2 , 2012

4 Figure 1 : Annual US Prima ry Energy Consumption by End Use, 2010 Lighting, 20.2%

Space Heating,

16.0%

Space Cooling,

14.5% Ventilation,

9.1% Refrigeration,

6.6% Water Heating,

4.3% Electronics, 4.4% Computers, 3.6% Cooking, 1.4% Other (1), 14.5% Adjust to SEDS
(2), 5.4% Annual US Primary Energy Use of Commercial Buildings by End

Use, 2010

Total Primary Energy Consumption =

18.26 Quads

(1) Includes service station equipment, ATMs, telecommunications equipment, medical equipment, pumps, emergency
electric generators, combined heat and power in commercial buildings, and manufacturing performed in commercial
buildings. (2) Energy adjustment EIA uses to relieve discrepancies between data sources. Energy attributable to the
commercial buildings sector, but not directly to specific end

- uses. Source: DOE
Building Energy
Databook, March

2012.DOE Convening Report on Certification of Commercial HVAC and CRE Products, October 2 , 2012

5 Figure 2 shows a n ov erall e stimated br eakdown of C RE e nergy consumption b y equipment

segment.

Figure 2 : Primary Energy Use of Commercial Refrigeration Equipment (Source: NCI 2009)

Figure 3 shows an overall estimated breakdown of commercial cooling and commercial heating energy consumption by equipment segment.

Figure 3: Commercial Primary Energy Use of Cooling and Heating Equipment as of 1995 (Source: DOE BED March 2012)

By any measure, this is a major, significant industry. CRE and commercial HVAC fall under the North American Industry Classification System’s (NAICS) code 33341

– Ventilation, Heating, Supermarket
Refrigeration,

56%

Walk

- Ins, 12% Reach

- Ins, 9% Refrigerated

Vending
Machines, 8% Ice Machines,

7% Beverage

Merchandiser

s, 4% Food Service

Equipment,

4% Primary Energy Use of Commercial Refrigeration
Equipment

Packaged Air
Conditioning

Units, 54%

Room Air
Conditioning,

5% PTAC (2), 3% Centrifugal
Chillers, 14% Reciprocating
Chillers, 12%

Rotary Screw
Chillers, 3% Absorption
Chillers, 2% Heat Pumps,

7% Commercial Primary Energy Use of Cooling Equipment

as of 1995

Packaged
Heating Units,

25%

Boilers, 21%

Individual

Space

Heaters, 2% Furnaces, 20% Heat Pumps,

5% District Heat,

7% Unit Heater,

18% PTHP &

WLHP, 2% Commercial Primary Energy Use of Heating Equipment

as of 1995DOE Convening Report on Certification of Commercial HVAC and CRE Products, October 2 , 2012

6 Air

- Conditioning, a nd C ommercial R efrigeration E quipment M anufacturing. A ccording t o t he

US C ensus B ureau’s 20 09 S tatistics of U S Businesses 3 for N AICS c ode 33341, HVAC and commercial refrigeration equipment manufacturing accounts for 1800 manufacturing establish

ments (a single physical location at which business is conducted and/or services are provided) in the US. The annual payroll under this classification, which is all forms of compensation, such as

salaries and wages for this industry

, is valued at $5,613,359,000. The number of paid employees for the industry is 133,259, or about 13% of total employees for all machinery manufacturing in the U S. T he t otal va lue of s hipments f or t his i ndustry, i ncluding s ales, s hipments, r eceipts, revenue, or business done by domestic establishments, excluding foreign subsidiaries, is valued at $40,503,880,000. 4

Given the high degree of primary energy use, there are significant environmental impacts from these s ectors. For example, i n terms of g reenhouse g as e missions, Table 1 shows t he a verage emissions resulting from CRE and commercial HVAC primary energy consumption. 5

Table 1 : Estimated Greenhouse Gas Emissions (Million Metric Tons) fro m CRE and HVAC Primary Energy Consumption

CO 2 CH 4 NO

x CRE 238.87 6.41 3.72

HVAC 1433.23 38.48 22.33

TOTAL 1672.10 44.89 26.05

M anufacturers h ave for over 50 years be en c ertifying and t esting t heir p roducts either w ithin

their own facilities o r through various c onsortia

. Such t esting w as t raditionally c onducted t o ensure quality control with customer specifications. Later, as govern ment regula tions increased on energy efficiency and food safety, such consortia broadened the scope of their tes t offerings accordingly. Today, an industry trade group administers a certification program whose purpose

is to “ demonstrate t o government a nd building ow ners...that equipment pe rformance claims have been independently measured and verified, instilling consumer confidence and enabling fair product comparisons.” 6

Specifically, the Air Conditioning, Heating, and Refrigeration Institute ( AHRI ) requires its 400 members ( nearly entirely from t he H VAC i ndustry, a s oppos ed t o C RE), r epresenting over 800,000 models, to adhere to many rules, including:

• Annual mandatory tests of at least 20% of each OEM p articipant’s certified Basic Models or Basic Model Group(s)(BMG);

• Products that are unable to meet the requirements of the applicable rating standard are subject to m andatory r e

- rates or s hall be m ade obs olete, m eaning t hey m ay no l onger be manufactured or sold; and

3 https://www.census.gov/econ/susb/index.html

. 4 From U.S. Census Bureau’s 2007 Industry Statistics, http://www.census.gov/econ/industry/hierarchy/i3334.htm.

5 http://www.eia.gov/oiaf/1605/pdf/Appendix%20F_r071023.pdf

. 6 AHRI. http://www.ahrine t.org/App_Content/ahri/files/Certification/CERT%20PROGS%20ENG%20JAN2012.pdf (accessed 9/14/12).DOE Convening Report on Certification of Commercial HVAC and CRE Products, October 2 , 2012

7 • Products th at f all b elow th e min imum s tate o r f ederal e fficiency r equirements s hall b e removed f rom t he A HRI D irectory of C ertified P roduct P erformance (Directory) a nd t he government Agency shall be notified. 7

L EGAL AND R EGULATORY B ACKGROUND

Overview o f DOE Regulations. DOE h as p romulgated 8 several r egulations on e fficiency standards and c ertification ac ross t he commercial eq uipment t ypes t hat are t he subject of t his

report. 9 DOE has also issued enforcement regulations aimed at ensuring that manufacturers meet the e nergy a nd w ater c onservation s tandards a nd s ave e nergy for A merican c onsumers a nd

businesses. More s pecifically, D OE through t hese r egulations s eeks to “establish a uni form, systematic, and fair approach to certification, compliance, and enforcement that will allow the Department t o ef fectively enforce i ts s tandards an d en sure a l evel p laying f ield i n t he marketplace w it hout undul y bur dening regulated e ntities.” 10 In es sence, D OE’s r egulations include three key requirements for manufacturers that must be addressed sequentially:

• First, m anufacturers m ust t est their pr oducts i n a ccordance w ith t he D OE t est procedure(s).

• Se cond, m anufacturers must c ompare t heir t est r esults w ith t he applicable energy conservation standards to ensure that their products meet those standards.

• Third, manufacturers will be required (as of December 31, 2012) to certify to DOE, based

on their test ing, that the commercial products they sell comply with the applicable energy efficiency requirements. Certification must occur prior to initial distribution in commerce and annually thereafter. 11

Testing Requirements. Manufacturers must address two key requirements for testing conducted in support of developing the certified ratings, namely:

• how the products are gr ouped for testing purposes by a representative “basic model;” and

• how many units are tested (e.g., sample size).

A basic model (with some product-specific exceptions, as described further below) includes:

all units of a given type of product (or class thereof) manufactured by one manufacturer, h aving t he s ame p rimary energy source, and w hich h ave essentially id entical e lectrical, p hysical, and f unctional ( or h ydraulic)

7 AHRI Operations Manual , p gs . 11

- 12 , January 2012. http://www.ahrinet.org/App_Content/ahri/files/Certification/2012%20General%20OM.PDF (accessed 9/14/12)(providing detailed guidance and requirements to users).

8 Congress pr ovided a uthority t o D OE t o i mprove e nergy e fficiency un der T itle I II of t he E nergy Policy a nd Conservation Act of 1975, as amended (EPCA). 42 U.S.C. § 6316 addresses commercial equipment, which includes the products subject to this convening.

9 This report focuses on commercial, not residential products, though the certification process is conceptually similar

for both.

10 75 FR 56796, 56797.

11 10 CFR 429, Subpart B

.DOE Convening Report on Certification of Commercial HVAC and CRE Products, October 2 , 2012

8 characteristics t hat af fect en ergy consumption, e nergy efficiency, water consumption, or water efficiency. 12

Essentially i dentical m odels ne ed not be t ested. Instead, D OE pe rmits, f or pur poses of t esting pursuant to DOE’s regulations, manufacturers to group their models into “basic models” based on ch aracteristics t hat impact en ergy/water ef ficiency. For example, if s everal m odels of refrigeration cabinet used in stores to chill food are sold in a variety of colors but are otherwise identical, all these colored cabinets would clearly be a basic model. The problem becomes more complex given the variety of factory -i nstalled options and accessories available to end users, as noted i n F igure 8, be low. D OE ha s s tated t hat m anufacturers m ay group m odels a t t heir discretion as long as all models within the basic model have the same certified rating and the

manufacturer ha s test data to support the certified rating. T here is not, however, a requirement for there to be multiple individual models within a basic model; therefore, a basic model may only include a single model.

A brief history of the DOE rulemakings that further define these concepts and provide context for the parties’ views described in section III are set forth below.

CCE Requirements. DOE first adopted certification, compliance and enforcement regulations for commercial equipment in a January 5, 2010 fi nal rule. 13 It set forth sampling provisions, testing tolerances, i ndependent t esting/verification r equirements, a nd t he i nitial s et of e nforcement regulations for most types of commercial equipment. DOE subsequently revised some of those provisions i n i ts M arch 7, 2011 Certification, C ompliance, a nd E nforcement final r ule. 14 The March 2011 CCE final rule contains DOE’s most comprehensive explanation of the concepts of basic m odel a nd s ample s izes us ed f or c ertification t esting f or va rious pr oducts. F or i nstance, regardin g sample size, DOE clarified that DOE regulations require at least two (2) samples to support cer tification f or each b asic m odel

. 15 It f urther e xplained t hat c ommenters t o t he rulemaking agreed t hat i f m odifying a m odel c hanged e nergy or w ater consumption and t ests would no longer support the rated value, such a modification would require creating a new basic

model that must be certified to DOE. 16 In addition, DOE created a general definition of basic model that was similar to the existing product

- specific d efinitions.

DOE cl arified i n t he C CE f inal r ule t hat d espite an y s light d ifferences b etween t his g eneral definition and the historical, product

- specific ones, it was not changing the meaning of a basic model a nd w ould “ maintain t he s tatus quo unt il a f u ture r ulemaking.” DOE em phasized t hat “[t] his c hange i s i ntended t o pr ovide a s ingle, uni form de finition

... that p ermits w hat th e Department understands to be the current practice

— the grouping together of individual models with essentially (but not necessar ily exactly) identical energy or water efficiency characteristics. ” It d id n ot f urther a ttempt to c raft c riteria to f urther d efine “ essentially id entical,” n oting th at defining pr ecise c hanges t hat w ould trigger c reation of a ne w ba sic m odel ( e.g., s pecifi c percentages of va riance) “ is a c omplicated m atter” given t he di versity of pr oducts of fered b y

12 10 CFR 430.2.

13 75 FR 651.

14 75 FR 12421

. 15 10 CFR 429.11(b).

16 76 FR 12422 at 12429.DOE Convening Report on Certification of Commercial HVAC and CRE Products, October 2 , 2012

9 manufacturers. 17 The compliance date for certifying these products 18 is currently December 31,

2012. 19

Figure 4: CCE and AEDM Rulemaki ng Timeline

Voluntary I ndependent Certification P rograms (VICPs)

. The January 2010 rule r equired t hat testing pr ior t o certification f or H VAC a nd water h eating pr oducts be pe rformed at a n independent test facility or under the supervision of independent testing personnel. That rule also

created a f ramework t hat w ould ha ve allowed f or m anufacturer t esting ( without i ndependent oversight) i f t he m anufacturer w ere also a p articipant i n a D OE

- approved V ICP. 20 No V ICPs were ever approved by DOE under those regulations, however. O n September 16, 2010, D OE published a N otice of P roposed R ulemaki ng on C CE ( CCE N OPR) pr oposing c hanges t o t he testing and certification process

. 21 The March 2011 C CE final rule, responded to comments on the S eptember 2010 pr oposed r ule a nd a dopted t hese pr oposals. 22 Consequently, a ll manufacturers are subject to the same testing requirements for the purposes of the certification requirements that will be effective on December 31, 2012. But some interests are of the view, however, that the VICP regulations and their interpretation are both controversial and confusing.

For additional a nalysis of t his c oncern s ee t he di scussions t itled “ D iffering I nterpretations” in section III, below.

Enforcement. DOE , despite having legal authority to do so earlier, only recently began enforc ing its commercial regulatory requirements. 23 C urrently, i f a basic model is n ot properly certified

, DOE may seek civil penalties and/or injunctive action to prohibit distribution in commerce of the

basic model. 24

17 Id.

18 The c urrent c ertification standards f or H VAC a nd C RE can be f ound a t 10 C FR 429. 42 (CRE) a nd 429. 43 (HVAC).

19 10 CFR 429.12 (i).

20 10 CFR 431.174

- 175 (Jan. 1, 2011 ed.); 75 FR 652, 667.

21 75 FR 56796 , 56803

. 22 CCE Final Rule at 12504 (removing and reserving §§ 431.171

- 431.176). DOE notes that it wants to encourage verification testing, but chose not to change the definition of VICPs

, and will consider other changes to VICPs in a subsequent rulemaking. CCE NOPR at 56803.

23 74 FR 52, 793, October 14, 201 0.

24 10 CFR 429.114, 429.118.DOE Convening Report on Certification of Commercial HVAC and CRE Products, October 2 , 2012

10 AEDM Proposed. Aware that certification, including the related testing requirements, are largely viewed b y i ndustry a s b urdensome, D OE h as pe rmitted Alternative E fficiency D etermination

Method s ( AEDMs ) for H VAC commercial e quipment s ince t he J anuary 2010 r ule. DOE proposed e arlier t his year t o e xpand t he t ypes of pr oducts a llowed t o use A EDMs t o i nclude CREs a nd ot her pr oducts. D OE a lso pr oposed r evisions t o t he e xisting A EDM r equirements. AEDMs allow manufacturers to certify using simulations instead of relying solely on laboratory

tests. 25 In its NOP R ( AEDM NOP R) DOE explained that AEDM s are co mputer modeling or

mathematical to ols th at predict t he pe rformance of non

- tested basic m odels. In t he AE DM NOPR, DOE requested comment on, among other things: (1) whether preapproval of an AEDM by D OE w as n ecessary; ( 2) t he s cope o f co verage for A EDMs; ( 3) how a n A EDM c ould be substantiated based on testing tolerances and sample size; and (4) subsequent DOE validation of AEDMs through testing. In response, some from industry sought to link issuance of an AEDM final rule with the December 31, 2012 c ertification compliance reporting date by asserting that the certification deadline should be extended to allow manufacturers an opportunity to employ the less burdensome AEDM compliance strategy. The comment deadline has since passed and DOE has not published a final rule at this time. This convening analysis, therefore, necessarily

assumes the absence of an AEDM rule.

Open t o N egotiations t o A ddress E nergy Efficiency. Both D OE a nd i ts stakeholders have generally be en ope n t o ut ilizing ne gotiations t o de velop r egulatory proposals for en ergy efficiency s tandards . Indeed, D OE in 1999 explored the f easibility of conducting a ne gotiated rulemaking on residential clothes washers and air conditions. The exploration did not lead to a

reg n eg
, although no f ormal de cision on i t w as a ctually made

. And va rious p arties h ave negotiated consensus efficiency standards on several occasions. For example, in 2004, numerous industry r epresentatives of t he c ommercial pa ckage a ir conditioning a nd he at pum p industries forged a consensus with the State of California and several environmental advocacy groups on efficiency s tandards that w as e ventually s ubmitted to DOE on J anuary 10, 2010. 26 As not ed previously, in 2012, D OE utilized a negotiated rulemaking to develop standards for distribution

transformers. 27 In 2012, h owever, while a coalition of parties proposed a consensus proposal to DOE regarding residential furnaces, the standard, which was finalized by DOE through a direct final rule, has been challenged i n court. 28



### III. T HIS 

### C ONVENING

B ACKGROUND

This s ection c ontains a s y nthesis ba sed on vi ews e xpressed b y pa rticipants i n t he i nterview

process.

Based on feedback from industry, DOE announced on July 1 0 , 2012 that it was considering the feasibility of c onducting a ne gotiated r ulemaking t o de velop certification regulations for

25 77 FR 32038

, May 31, 2012

. 26 75 FR 14368, 14370, 3/25/10.

27 77 FR 7282, 7292, Feb. 10, 2012.

28 American Public Gas Association v, United States Department of Energy, No. 11

- 1485 (D.C. Cir. 2012).DOE Convening Report on Certification of Commercial HVAC and CRE Products, October 2 , 2012

11 commercial HVAC (including commercial water h eaters and commercial boilers ) and C RE products (not including walk -ins). In addition, DOE indicated it was acutely aware that industry

is concerned with the burdens related to the wide variety of options available to HVAC and CRE equipment pur chasers a nd t he hi ghly c ustomized process of m anufacturing s uch pr oducts. Specifically, D OE s ought assessment through t he c onvening pr ocess on t opics i ncluding: (1)

h ow basic models might be grouped for certification; (2) what information should be certified to

DOE ; an d (3) when c ertifications s hould be m ade. They al so cl arified t hat DOE was “not considering r e

- opening the c oncept of ‘ basic m odel ’ with r espect to th e r ating a nd te sting requirements a nd will a ddress a ny potential changes to th e compliance d ate f or c ommercial certifications i n a s eparate p roceeding.” 29 DOE also pr ovided a l ink on its website providing public information on t he negotiated rulemaking process. This document discussed the process under the Negotiated Rulemaking Act, provided the legal authorities for its use, and described the confidential nature of the convening process (see Appendix C).

During this c onvening, 40 representatives f rom a wide r ange of commercial H VAC an d C RE interests were interviewed. Industry stakeholders included manufacturers of commercial unitary

air

- conditioners a nd he at pum ps, pa ckage t erminal a ir

- conditioners, s ingle pa ckag ed v ertical units, c ommercial w ater h eaters, c ommercial b oilers a nd c ommercial refrigeration e quipment. Both small and large business manufacturers in the commercial HVAC and CRE industries were interviewed

. One major manufacturing t rade as sociation f or t his i ndustry , AHR I, wa s

interviewed . Other t rade as sociations contacted were t he National Association of C onvenience Stores and the Heating, Air

- Conditioning & Refrigeration Distributors International. Other type s of or ganizations c ontacted i ncluded t esting l aboratories ; energy ef ficiency and e nvironmental advocacy groups ; and state energy agencies. Users and parties that purchase commercial HVAC and CRE equipment were also included in the interview process. Not unexpectedly, some parties

who were contac ted chose not to participate in the interview process (see section IV, below). The interviews w ere conducted i n A ugust a nd S eptember of 2012, and m ost w ere conducted b y phone.



### S UBSTANTIVE 

### I SSUES

O VERVIEW

Differing Interpretations

. The c onvening t eam notes a t t he out set that t here a ppears t o be widespread c onfusion among t he p arties r egarding t he i nterpretation of s everal ke y DOE regulatory c oncepts r elevant t o t he HVAC a nd C RE products of i nterest he re. For i nstance, parties disagr ee what a b asic model is and what type of grouping strategy would satisfy DOE’s requirements fo r given t he va gue not ion of an “essentially i dentical ch aracteristics.” 30 In addition, as not ed i n t he di scussion i mmediately b elow , th e imp act of C CE f inal r ule on voluntary i ndependent ( i.e., t hird

- party) certification p rograms ( VICPs ) is s ubject to interpretation and hence uncertainty and confusion.

29 Email from Ashley Armstrong, Department of Energy

, titled Announcement from the U.S. Department of Energy Regarding Certification of Commercial HVAC and Refrigeration Equipment

, July 10, 2012

. 30 See discussion on CCE Requirements, above at p. 10.DOE Convening Report on Certification of Commercial HVAC and CRE Products, October 2 , 2012

12 Second

, the CCE final rule , discussed in section II, above, addressed many issues, including to
whom a manufactur er could certify compliance

. The issue was the use of VICPs as an alternative to certification b y manufacturers directly to DOE. The previous final rule of January 5, 2010 allowed for the use of VICPs for HVAC and water heating products. 31 On September 16, 2010, however, DOE published a N otice of Proposed Rulemaking on CCE (CCE NOPR) proposing to “simplify” the requirements so that only one process could be used for HVAC and water heating equipment t esting. T herefore, t he s ame p rocedure w ould ha ve t o b e f ollowed r egardless of whether t he co mpany was p articipating i n a V ICP or no t

. DOE e xplained t hat the s ampling procedures currently applicable for non

- VICP members must be used for certification testing of all types of commercial HVAC and water heater equipment and verification of the AEDM. 32 In the C CE f inal r ule, t his VICP pr oposal w as a dopted. 33 Consequently, t he certification pr ocess that will be effective on December 31, 2012 applies the same requirements to all manufacturers and us es t he s ame de finition of ba sic m odel. But, a s not ed i n t he substantive i nterview

sum maries be low, t his i ssue ha s a lso f ostered c onfusion r egarding what t he r egulations mean

. Whether or not it intended to do s o, this change appears to require products to be tested under

DOE ’s requirements and not those established by VICPs. As is discussed in more detail below,

there are significant differences between the two, so this change while appearing minor in fact induced concerns. The basic model definition was not proposed for amendment in the AEDM rulemaking, discussed below.

The re are four key differences between the DOE’s enforcement requirements and AHRI verification program requirements:

• To make a compliance determination, DOE tests a sample size of between 4 and 21 units per basic model, in most cases; for verification purposes, AHRI require s one sample per basic model group (BMG). The BMG is conceptually similar to DOE’s basic model, but AHRI allows broader grouping in a BMG.

• The use and application of testing tolerances.

• While DOE’s enforcement testing is done at its discretion

, AHRI requir es all its member companies to submit to a mandatory post- certification verification test for 20% of each BMG each year. As a result, a manufacturer participating in AHRI’s program, compared

to a non- participating manufacturer, appears to have a far great er likelihood of getting tested by AHRI in their verification program versus the DOE’s enforcement testing

program (see Figure 5, below)

.

31 10 CFR 431.174 , 75 FR 652, 667.

32 75 FR 56796 , 56803

. 33 CCE Final Rule at 12504 (removing and reserving §§ 431.171

- 431.176). DOE notes that it wants to encourage verification testing, but chose not to change the definition of VICPs, and will consider other changes to VICPs in a subsequent rulemaking. CCE NOPR at 56803.DOE Convening Report on Certification of Commercial HVAC and CRE Products, October 2 , 2012

13 Figure 5 : Comparison of DOE and AHRI Testing Burden

Issue Interaction. While many issues were identified as being linked to certification across the CRE and HVAC spectrum, several cross

- cutting themes were applicable to both groups. First, all manufacturing parties, as well as end users and advocacy groups (discussed in their respective sections, below)

, discussed certification in the broadest sense (see Figure 6, below) . Second, they

viewed c ertification a s inextricably l inked t o the core i ssues o f A EDMs, sa mple si ze, t esting tolerances, and ba sic model a nd gr oupings (see F igure 7 , b elo w)

. For i nstance, c ommon

statements summarized below illustrat e these connections:

• H ow can you certify without testing ?

• AEDMs would not be needed if the number of basic models could be reduced.

• Even using more permissive grouping strategies and AEDMs, they could not meet the

certification deadline

.

• They would be hard pressed to test two samples, but could comply if new AEDMs and grouping were available.DOE Convening Report on Certification of Commercial HVAC and CRE Products, October 2 , 2012

14 Figure 6 : Many Issues Linked to

Certification Figure 7 : Core Issues Interrelated with

Certification

Explaining the issues based on the recent rulemakings, an industry representative stated, “ [w] ith

out an AEDM in place, manufacturers will have no other option but to test all their basic models. This is contradictory to the objective of the AEDM rulemaking, which is to reduce the testing burden o n m anufacturers. G iven t he l arge vol ume of d ata n eeded t o p opulate t he certification reports, the certification reporting date of December 31, 2012” should be postponed until a min

imum of 18 months lead- time after publication of the final rule on AEDM.

Second, on the bedrock issue of the utility of certification programs

, nobody questions whether a certification program is needed , but they do differ on the appropriate program contours and the roles of DOE and industry in its implementation.

Third, a nother co re co ncern i s t hat D OE i s treat ing c ommercial pr oducts like residential appliances w hich c an s imply be br ought hom e and “ plugged i n” without t he ne ed f or f ield adjustments. Commercial m anufacturers believe , how ever, there a re m ajor d ifferences s in ce compared t o r esidential products, commercial units require s pecialized t echnicians t o t est an d

install th em o n s ite ; utilize ex tremely d ifferent test p rocedures; an d include a v ast number of factory installed options and accessories.DOE Convening Report on Certification of Commercial HVAC and CRE Products, October 2 , 2012

15 M ANUFACTURERS

T he s pecific i ssues r aised b y t he C RE an d H VAC r epresentatives i nter viewed are s et fo rth

below.

CRE

C ERTIFICATION

CRE manufacturers strongly supported creating guidelines to group products more effectively to reduce testing burden. In fact, nearly all h ave a grouping strategy already

. One party explained

that while the y can not “ physically (e.g., laboratory) test ‘every conceivable combination,’ given they have about 15,000 possible combinations in their catalogue, ” nonetheless, certification can

be accom plished.

Figure 8 : Commercial Refrigeration Equipment – Basic Model Example

Predictably, there are a wide variety of grouping strategies to derive a number of basic models that need to be reported to DOE based on t he variety and number of models offered. Nearly all CRE m anufacturers u sed a “co nservative” ap proach t o cer tification by selecting t he l east

efficient model in a group to represent the rating for the entire group of products . For example, grouping could be based on r efrigeration system base models to which one adds more efficient features from cat egories such as the follo wing : lighting, door type

, frame heaters, and motors. Another party explained that products could be grouped by families such as “ multi

- deck cases

and island freezers .” In addition, t hermal load could also be a grouping criteri on. But one party who a pproved o f t he conservative t esting ap proach noted t hat the m etric u sed b y DOE in its

standards includes total display area , so it is not clear that total energy consumption would by

itself be the basis for a grouping strategy

. Another reported downside to the c onservative rating method i s t hat i t r equires a m anufacturer t o verbally ex plain t o a customer w hy actualDOE Convening Report on Certification of Commercial HVAC and CRE Products, October 2 , 2012

16 performance i s s uperior to its publ ished rating. Consequently, if you m ust c ompete ba sed on efficiency, you may have to establish a new basic model.

Some voiced frustration with the December 2012 certification deadline. For instance one party

asserted it would “ cost” $19M and take 26 years to do 1 year ’ s worth of certifications." Another party s tated they ar e r eady to comply with c ertification f or s e lf

- contained uni ts, but not f or remote e quipment; t hey a dded t he y were s till w aiting f or th e D OE’s C CMS c ertification template, and needed another six months to comply. On the other hand, one party stated that they were e ntirely p repared t o c omply with t h e d eadline now . A ll a greed th at te sting effort w as a major driver for certification compliance, though the time estimates for testing ranged from one week (minority), while others stated that to conduct tests properly takes four weeks.

Regarding e fficiency at tributes t hat d o n ot i mpact en ergy efficiency, o ne p arty offered t he following list: “ shelves, materials of the panels (liners), external components, height off of the floor, and color .” This issue is also described in the HVAC discussion, below.

Regarding those manufacturers complaining that they cannot certify products to DOE because they have so many different models, one questioned how are they able to certify now because they also have to obtain safety certifications for Underwriters Laborator ies ( UL ) for each of their

models.

S AMPLE S IZE

T he parties raised sample size as a m ajor issue. On the surface it appeared that the number of

tests (e.g., at least two) alone was a problem , since only one party acknowledged they do at l east

two tests. Some said they were planning on completing the testing using two samples b y the compliance date. But they often explained further that the number could not be discussed as an isolated variable. For instance, one party said th at while they would be “hard p ressed ” to conduct two tests for every basic model

, they would be able to comply if AEDMs and a new certification grouping approach were avail able, though it would still be an expensive proposition. It should be noted that DOE appears to agree with the benefits of the AEDM proposal. Finally, testing two samples for a custom product is a problem, as further explored below.

C USTOMIZED P RODUCTS AND T IMING OF C ERTIFICATION

Given t he r equirement for ha v ing at l east two s amples tested , r egardless of t he s ize of the product r un, a ll pa rties t hat m ade c ustomized o r l ow

- volume uni ts a greed t hat s ome ki nd of exception or s eparate c onsideration w as ne eded f or such units, i ncluding a ccessories. For example, one party stated that they have only tested two or three low-volume "wedge" case s. “I f you are only shipping ~10 units per year, that’s not significant in terms of energy impacts, while

the t esting expense for t wo sample s , which is spread a cross the ten units, is quite expensive. ” Most p arties , how ever, did not offer clear i dea s re garding how t o dr aw a l ine r egarding t he

criteria or t hresholds for an exemption

. One pa rty s uggested D OE c onsider how c ustom products a re ha ndled i n ot her c ountries, i ncluding C anada, A ustralia, a nd N ew Z ealand. 34

34 For e xample o f i nternational tr eatment o f c ustomization, s ee Energy P erformance St andard f or R efrigerated Display Cabinets (merchandisers), Canadian Standards Association, C657

- 12, August 2012.DOE Convening Report on Certification of Commercial HVAC and CRE Products, October 2 , 2012

17 Another pa rty que sti on ed whether pr ogress on g roupings a nd A EDM s in a f uture pr oceeding would address customized product testing. One stated that for AEDM s, m aybe not because they

still need to qualify the AEDM and that involves a lot of work. An appropriate grouping strategy could help resolve the issue, but they would have to check to see how different the performance of a particular unit is compared to the standard and make a decision.

Regarding timin g of c ertification , one p arty s uggested t hat f or s mall pr oduction m odels, they would like to certify those products in the CCMS system at the same time they a re creating the unit for delivery to a customer.

AEDM S

All p arties a greed th at h aving an A EDM requirement in p lace will g reatly s implify th e

certification burden . A ccording t o one pa rty w ho w as t ypical of ot hers i n t he C RE industry, “[ n ]ot having an AEDM to reduce testing burden is a ‘show stopper’ because testing all unique models would be impossible. ” Manufacturers were, indeed, anxious about when the AEDM rule

would b e finalized, since they were “hoping that by the December 31 , 2012 certification deadline the A EDM r ule w ould be put i n pl ace. T hey w ould be i n pr etty good shape i f t hey ha d t he AEDM a nd gr ouping ( e.g., b asic m odel) i dea i n pl ace.” B ut onl y about one ha lf of CRE representatives had developed an AEDM (e.g., addressing changes to lighting, case lengths, B tu loadings). Some questioned whether AEDMs would fully solve the basic model problem, since they will not necessarily cover all products and they a re used only as a “ general guideline, as opposed to one for specific units.” Others again noted the interplay between AEDMs and other

issues. F or i nstance, a s one put i t, “ [i] f a b asic m odel i s an ything that i ncreases energy consumption, they would want to calculate the energy consumption using an AEDM” d ue to the lower testing burden. Finally, r egarding timing of certifying products before they are introduced into commerce, AEDMs would work for them even if introducing into commerce is interpreted

as "before selli ng the first unit to a customer."

T ESTING

Many parties stated that DOE must have some accommodation for testing tolerances. Although

some of t he l arger m anufacturers w ould b e m ore likely to a ccept a m ore s tringent te sting

tolerance (statistics to lerance) for c ertification b ased on t hem ha ving t he r esources to do t he testing , n ot a ll ma nufacturers agreed w ith th is v iew

. For t olerances (test p rocedure o perating condition range)

, one party said they try to be stricter in their labs in o rder to have better results

than the ASHRAE test method

. A couple of parties agreed DOE’s 5% testing tolerance (statistics tolerance) is acceptable

. A wide array of test variability were reported ranging from : 4- 5% on the

same unit from one test to another ; 8- 9% difference even within the acceptable temperature and humidity r anges i n t he t est pr ocedure ; and ~13 -15% of e nergy consumption ba sed s olely on manufacturing us ing three o f th e s ame u nits

. One not ed t hat l abs do n ot t est r emote uni ts a s easily as sel f contained units. One party discussed a process for a ccount ing for variability, which

involves using the worst of three tests as follows: If the “pre

- production” energy consumption is off b y > 10% of the prototype, they discount the prototype’s energy consumption rating. If the full production energy consumption is off by >5% of the “pre -production” energy consumptionDOE Convening Report on Certification of Commercial HVAC and CRE Products, October 2 , 2012

18 rating, th ey d o analysis to in vestigate th e is sues. One p arty cl aimed t hey wo uld be fine w ith

“ testing everything ” as it would keep poor performers out of market.

The parties described the methods they use and other observations:

• They test near the mid -point conditions for temperature and humidity.

• They test every product they make for N ational S anitation Foundation (NSF) Standard 7.

• They add some cushion factor to address variability.

• The 8

- hour door opening requirement that may not be appropriate for freezers, while a 16-hour requirement would be better, though this raises data comparability problems.

• High volume units get more physical testing and they are more confident with a lower safety factor.

Regarding third

- party lab testing and t olerances (lab

- to

- lab v ariability)

, one party claimed t hat compared t o s ubmission of da ta i n t he c ertification pr ocess, t he most pr oblematic pa rt of t he entire p rocess i s t he u ncertainty o f t he r epeatability o f third -p arty te sting. First, i f DOE’s interpretation of the third

- party lab test p rocedure is different than that of manufacturers it could be a problem. Second, anything that could cause such labs to interpret the method differently is a problem. They have not done comparative testing at different labs.

VICP S

One p arty w as a ware o f only one C RE m anufacturer pa rticipating i n A HRI's certification

program , t hough t hey w ere not identified

. Most CRE p arties a re f ine with s ubmitting c erti

fications directly to DOE . One party explained that they chose not to be a member of AHRI since

AHRI requests companies to report sales data, but they do not want that data shared with other

AHRI members. Instead of paying membership fees, they utilize that money for in -house testing.

C OMMERCIAL HVAC

, C OMMERCIAL B OILERS , AND C OMMERCIAL H OT WATER H EATE RS

Nearly all commercial HVAC manufacturers are participants in the AHRI directory of certified product performance. AHRI’s membership for advocacy purposes, as opposed to product

certification , includes the vast majority of U S manufacturers of commercial HVAC equipment and water heaters, as well as manufacturers of CRE

.

C ERTIFICATION

Many as pects t o cer tification w ere r aised b y t he p arties. A k ey challenge p resented w as t hat manufacturers may have millions or billions of unique possible combinations of product s based

on various components and options available, but they all acknowledged that the actual number of basic models is substantially lower (e.g., 400) since those basic models vary only with respect to differences in efficiency . Fi rst, regarding basic model, nearly all parties favored some type of grouping concept that would lower testing and related certification submittal burden, and most of those s upported t he concept u tilized b y AHRI (e.g., BMG). S ome be lieve t hat DOE s hould

exp lain why the BMG (e.g

., having a unique refrigeration system as a basis for grouping) is not feasible as a starting point for negotiations. Some supported using EER or capacity as a means of grouping models for the purpose of certification. But one party said they test everything, so theyDOE Convening Report on Certification of Commercial HVAC and CRE Products, October 2 , 2012

19 see no benefit with any grouping strategy. A related issue is the consequence of failing a rating and whether it is fair to have a whole group fail if one unit in the group fails. Most agree that the concept of on e uni t “ sinking t he w hole s hip” makes s ense, and i s c onsistent w ith A HRI’s practice. But not everyone agreed

.

The most common strategy described was to use the most conservative product (least efficient, without any high efficiency options) in a given group as the basis for rating the entire group ( as also not ed i n C RE di scussion, a bove ) . N early all p arties s aid th ey could id entify such u nits within the group that would support a conservative strategy. But some noted that the negative tradeoff o f s uch a s trategy i s th e in ability to te ll c ustomers o r a dvertise th e tr ue e fficiency of some of the units in the group, which are higher than their rating. To compete on efficiency you

would have to submit a different certification for each such unit. One party explained t hat the conservative s trategy could be e mployed i n di fferent w ays. For e xample, i f t he t est r esults support a rating of 9.25 EER , they might rate it a 9.0 EER, but a more sophisticated entity could

rate it as a 9 .2 EER . There is also a unit scaling consideration, since while “1/10th of an EER would not matter for a large r capacity unit, for a smaller capacity unit it would matter.” They, therefore, suggested consideration of a sliding scale to address capacity.

HVAC r epresentatives also ex plained w hich f a ctors di d a nd di d not i mpact e fficiency f or certification pur poses. Items m entioned t hat i mpact e nergy us e i nclude m otor t ype, ba se refrigeration system, hot

- gas bypass, and expansion valves. One stated DOE should not consider some options and accessories, such as filters, voltage, phase, damper motors, and coated coils. They suggested rat ing just the basic machines without accessories, which is the current grouping practice. But it would be more difficult to determine how to address controls and options, such as dehumidifiers, economizers, energy recovery wheels, and recovery ventilators. Other non

- energy consumption a ttributes mentioned w ere p aint, bird s creens and certain building ma nagement

controls. B ut one pa rty thought r ating a ne w m odel t hat i s m ore t han, s ay, 0.2 EER different compared to another model makes sense. And m anufacturers should not be punished for such

differences (within 0.2 E ER) c onsidering that in th e f ield th ere a re considerably l arge r differences i n e fficiency as a r esult o f installation practices ( e.g., r efrigerant piping, a ir f low configuration and improper installation) that make the 0.2 EER differences negligible.

Most o f th e A HRI me mbers s tated th ey n eeded mo re time to me et th e December 31 , 20 12 certification de adline, a nd s ome s upported A HRI’s pr oposal t o e xtend i t 18 m onths pa st t he AEDM r ulemaking ’s effective d ate. M any s aid t hey could m eet t he d eadline u sing A HRI’s definition of BMG, but not DOE’s b asic model definition. One asserted that even using m ore permissive grouping s trategies a nd A EDMs, it would be difficult to me et th is d eadline. Regarding the level of effort required to meet the deadline, one stated that they were working at a

“ furious pa ce ” to m eet it . Another stat ed that it would take them five years and $5 million to complete all the testing using DOE’s definition of basic model , and this estimate also requires shutting down their manufacturing production.

There were two other unique comments. First, one party no ted that private labelers are importers and are legally responsible to ensure proper product certification. But they do not have access to

CCMS data , though AHRI’s directory is public. Broadening the scope of p ublic access to CCMS would help them conduct c ompliance assurance.DOE Convening Report on Certification of Commercial HVAC and CRE Products, October 2 , 2012

20 S AMPLE S IZE

About half of those interviewed said they test one sample of a g iven BMG based on t he AHRI requirements, w hile ot her pa rties r eported t hat t hey t est t wo or t hree. H owever, t hree of t hese parties test two units in a BMG ( e.g., smallest and largest cabinet) and interpolate results to the units in between, sometimes using simulations to calculate those ratings (e.g

., estimating CFMs). Another party explained that if they could run only one test they could simply assign a to lerance (a cushion) of 5% to their ratings, depending on how close they are to the standard. One noted they test all mini

- splits and one

- to

- one units, while another explained they test air conditioners and heat pumps separately. Regarding the various possible combinations and options, one stated they do some testing on these as well.

C USTOMIZED P RODUCTS AND T IMING OF C ERTIFICATION

Overall, fewer parties voiced opinions or concerns regarding customization compared to CRE.

Two manufacturers stated that they did a large amount of business with customized units. One party said the amount was “extreme,” while the other said it constituted 50% of their sales. Two others said they did no custom work. One party said larger units are made to order and not kept in stock. In addition, given that custom units can cost $50,000 each, testing two of each would be expensive , a nd nor mally t hey cannot b e s old a fterwards. A s a r esult, on e manufacturer tested burners mu ltiple times while u sing th e s ame storage tank. A ccording t o a nother, c ustom uni ts would be grouped into one of the established groups and share the same rating as those in the

group. One party raised the challenge that any provision for exceptions could “swallow the rule”

itself.

Regarding the distributio n in commerce requirements, nobody from the HVAC sector objected to these r egulations. O ne p arty, ho wever, a cknowledged t here m ay b e a di fference i n how t his concept is interpreted that should be explored. Another said they are fine with these requirements since they conduct their due diligence b y this point. Before they make a sale, another offered, they provide test data to AHRI, who does a qualification test before the unit is accepted into the

AHRI c ertification directory. T hen upon a cceptance b y A HRI t hey can sell t he pr oduct. O ne party explained t hat t hey first de velopment t est a f amily of p roducts. T he pr e -announced prototype i s a dvertised i n l iterature. A s t hey get c loser t o t he a ctual m anufacturing da te, t hey send their ratings to AHRI.

AEDM S

Most parties stated they support the AEDM concept, but most do not currently have one ready for use. One s tated t hat as a general rule, s maller m anufacturers do not have t hese s imulation tools. Regarding applicability, a couple of parties noted that AEDMs were appropriate for non

standard units and accessories. Yet another stated they were not well suited for PTACs. Another

asserted that A EDMs w ould not be ne eded i f t he num ber of b asic m odels c ould be r educed. Some parties who did not have formal AEDMs stated t h at they nonetheless use various software packages f or s ome c alculations ( e.g., f rom O ak R idge National Labs). A f ew p arties raised substantive i ssues w ith AEDMs. F irst, on e s tated t hat pr eapproval b y D OE s hould not b eDOE Convening Report on Certification of Commercial HVAC and CRE Products, October 2 , 2012

21 required. Second, DOE’s requirement that AEDMs be qualified to within 5% is “too much for them to ta ke on.” Another p arty s tated th at A EDMs w ill n ot s olve all th eir c oncerns w ith certification s ince it w ould s till ta ke 1 5 years to r un a ll th eir r atings. T his p arty p lanned, however, to eventu ally use AEDMs for all their certifications.

T ESTING

According to mo st p arties, te sting a nd c ertification a re lin ked b ased o n testing costs. A manufacturer illustrated this point as follows: “[t]esting is what worries them, not providing data

to AHRI.” I t might cost them $20 ,000 for two tests under the AHRI program

– $10,000 per test,

one e ach f or t he smallest a nd la rgest (e.g., o ut of t en uni ts i n a B MG) . B ut a fter D OE certification requirements take effect, “it might cost them $ 200,000 for twenty tests – all ten

sizes times two tests for each unit .” A small business noted that they already pay a lot for tests, so testing two units is problematic. AHRI’s verification testing cost s them about $10 ,000 per test and $5,000-$6,000 for t he e quipment. F or t his reason a nd ot hers not ed be low on t olerances, testing is deemed a divisive issue.

The second major issue was testing tolerances or variability. Several noted that variability comes at all stages: manufacturing (e.g., 2%

- 3%), components (e.g., 2%

- 3%) a nd testing labs (e.g., up t o 8% ). B ut one a sserted t here w ould b e m ajor c osts from m oving f rom 5 %, t he w idely supported verification tolerance standard used by AHRI, to 0% assessment tolerance that DOE’s program would use. Another party stated that the bes t testing tolerance (test procedure operating condition r ange) achievable i s 2.5% . S ome w ere c oncerned a bout how s etting s are ad justed during t ests, w hich m ay cause t hem t o f ail. A r elated i ssue r aised was how opt ions a nd accessories are treated. Right now , these are not accounted for in testing.

A few other miscellaneous concerns were raised. First, o ne party sought clarity on indoor and outdoor C FM values t o be us ed f or t esting pu rposes (as s pecified i n I & O m anuals), and encouraged DOE to allow looking also at the technical literature and not “just what is packaged

in t he box .” Second, r egarding r epeatability r equirements, D OE n eeds t o p rovide ex plicit guidance on r ecourse for manufacturers, such as whether they c an be pr esent for a test and/or

have a m eeting with DOE to discuss the matter.

VICP S

The vast majority of the HVAC sector submits certifications directly to AHRI, though a couple of parties submit data both to AHRI and DOE (e.g., large customized product). Most parties who submit data directly to AHRI are satisfied with the process. Several expressed some variation on the theme that the AHRI program is well established and should be formally recognized by DOE as a valid VICP; therefore, “if it’s not broken, why fix it?” While one expressed satis faction with AHRI’s pr ogram, t hey acknowledged t hat t here i s a lways r oom for i mprovement. A nother sought consistency between the two programs. Many who objected to submitting certifications to DOE did not do so in the abstract; instead, they also opposed D OE requirement of needing two test samples, as noted above. One party was concerned they would have to do “double work” to certify t o bot h A HRI a nd D OE. W hen t here i s non

- compliance di scovered und er t he AHRI program, one e xplained, one ne eds t o f ollow t he AHRI guidelines t o c orrect pr oblems. One manufacturer explained that t hese typically occur during the early phase of product development.DOE Convening Report on Certification of Commercial HVAC and CRE Products, October 2 , 2012

22 E ND U SERS

End users of HVAC and CRE are concerned with certification and testing due to their substantial operating costs based on energy consumption. For example, one end user estimated that out of total energy use, CRE consumes 55%, while HVAC consumes 18%. For a nother end user, whose annual energy bill was approximately $850 m illion in the US, HVAC consumes 30

- 40%, while

CRE consumes 8-15%.

I MPACTS OF C ERTIFICATION

End users of HVAC and CRE products, including distributors, while not directly regulated b y DOE, discussed their concerns related to how changes to the requirements c ould impact them. All e nd u sers a greed th at if th e n ew s ampling regulations r equiring at l east two s amples are finalized , as opposed to one as AHRI and most manufacturers now employ– the timing of product availability would be delayed. One party stated this was a big concern since investments in new equipment are costly, and the quicker the new equipment can be deployed, the quicker the end users c an r ecoup t heir investment. F or e xample, i f a f acility o r s tore i s be ing ope ned or remodeled, and they cannot open on time, new funding streams are delayed until the equipment is up a nd running. A lso, end users unanimously agreed that additional testing would result in price changes a nd such costs would be passed along to customers.

The parties discussed whether efficiency gains were possible through the certification process

. One asserted the answer was yes, if testing tolerances (test procedure operating condition range) were t ightened

. Testin g t olerances n eed t o b e tightened because components m ay not m eet specifications. Another a greed, but f or a di fferent r eason. The p arty stated t hat t here c ould be unintended efficiency gains. Some products are more efficient than they say due to conservative

claims made in literature , and yet they are fine using a conservative number as long as they gain the efficiencies reported or it pay s back per the analysis. But i f they gain more in efficienc y that

is “a plus.”

C USTOMIZED P RODUCTS

The parties e xplained t he i mportance of t he c ustomization pr ocess a nd how e nd us ers a nd manufacturers w ork t ogether t o e nsure s pecialized pr oducts m eet s pecifications. Customized

units i nclude l ow

- volume pr oducts; how ever, on e of t he e nd us ers described low vo lume as being about 100 uni ts, while others would consider numbers as low as single units. Optimizing customization was deemed important by most regarding marketing and sales to retail consumers (e.g., f ood s tores). Among th e mo st imp ortant f actors in t he buying d ecision , f or cat alogue purchases and customized product, is energy efficiency. While it h as been important for many

years, t hree parties described efficiency being elevated o ver t he l ast f ive years as i t as an effective m eans o f l owering o perating costs given how l ong products l ast . A nother s aid efficiency dovetailed with green initiatives, such as reducing or neutralizing the carbon footprint

of their facilities.DOE Convening Report on Certification of Commercial HVAC and CRE Products, October 2 , 2012

23 All end users stated that a proportion of their HVAC and CRE products are customized, though the percentage varied. For example, one party explained that 30- 35% of total product is custom,

which is broken down as follows: 10- 15% HVAC and 85

- 90% CRE. But according to this party, the r eason f or s eeking i mproved e fficiency i n c ustomization w as l ess t han 5% of t he t otal. Another party claimed that their overall percentage of customized product was 35%, which was broken down by e venly be tween H V AC (5 0 %) and C RE (5 0 %). However, t his p arty cl aimed

that 95% of requested customization is based on m aintenance and energy efficiency. A third end user c laimed 33% of t heir pr oduct w as c ustomized ba sed on num ber of uni ts, t hough t hey indicated t hat ot hers m etrics c ould be f irst c ost and e nergy us e. T his pa rty br oke dow n t heir

custom units between HVAC 12% and CRE 33%

- 50%. Of the HVAC units 85% of customized products w ere pu rchased ba sed on f unctionality a nd c osts i ssues; 10% due t o “ form a nd fi t ” requirements within constrained spaces; and 5% due to cosmetic issues. O f their CRE units 30%

were cu stomize d ba sed on f unctionality a nd cost ; 60- 65% on f orm a nd f it ; and 5

- 10% on

cosmetics.

While customization may appear to constitute a small percentage of the overall products being utilized in any given facility, many customized products, once performance is verified, can be deployed at a large scale across scores of end user locations. For instance, one party offered that 85% of H VAC and 5% of C RE pr oduct now b eing u tilized in th eir lo cations started o ut as customized pr oduct. A nother pa rty m entioned t hat l ess t han 5% of H VAC a nd a bout 10% of CRE began as customized product. In any event, it appears that customization is a valuable, even critical, service for many end users. And it also is an important means of business development for m anufacturers given t hat it of fers t hem a c hance t o m aintain or de velop a w orking relationship based on their current/ future clients’ product needs.

All end users stated it was important for them to freely communicate with the manufacturers to explore R & D and customization opt ions prior to purchasing a product. Another party stated that th ey often f ield t est pr oduct a nd s hare m onitoring da ta w ith m anufacturer s . O ften t he product is provided for free. Regarding the relationship between manufacturers and end users

, conversations on customization typically range from three to six months , though the precise time depends on t he t echnology

. But o ne p arty s tated t hey a re i n “co nstant co ntact” w ith manufacturers, a nd t he product de velopment c ycle c an be f rom nine months t o t hree years i n length. This end user described its multi

- phase testing program, which involves testing both at the m anufacturing f acility and i n t he f ield. W hile t he s econd pha se m ight i nvolve 6

- 12 t ests, during pre-production, many more are tested in th e field. The performance specifications of these products are typically agreed upon through a contract , and manufacturers typically agree to meet the requirements or replace t he equipment.

E FFICIENCY M ONITORING

End users discussed the importance of the ir companies “ getting what you paid for ” in terms of energy ef ficiency

. At the outset, one noted that l arger companies with multiple locations were more concerned about this than independent ly

- owned stores , and such larger entities would “be

mad ” if th ey discovered that u nits d id n ot tr uly me et e fficiency s tandards. Regarding pr oving perform ance specification s have been met, a nother party explained that they conduct extensive

on- site sub

- metering on product electricity use , including field test ing, before they buy a productDOE Convening Report on Certification of Commercial HVAC and CRE Products, October 2 , 2012

24 in volume. One party stated they are now installing metering to track efficiency, but it is not part

of the contract with manufacturers.

AEDM S

One pa rty not ed t hat u sing AEDM s make s ense on l ower -volume product, but not f or hi gher volume products.

T ESTING T OLERANCES

Testing tolerances (test procedure operating condition range) should be put on the table, since lab conditions a re one t hing, but t hen w e m ight ne ed s ystem pe rformance boos ted ba sed on operational e nvironment s (e.g., a mbient air hotter in kitchen

, prep room r equires l ower temperature for CRE units

, or workers chronically leaving coolers open) . This appears to be the most challenging issue of all.

A DVOCACY O RGANIZATIONS 35

C ERTIFICATION B ENEFITS

Environmental efficiency a dvocates cited the important e nvironmental b enefits of D OE’s

program. They a pplauded DOE's interest in leveling the playing field between competitors and discouraging c heating t o e nsure e nergy s avings required b y l aw a re be ing a chieved. If noncompliance is occur r ing then efficiency is being compromised , though they acknowledged how

one measure s such “ leakage ” is difficult. They stated that DOE’s program needs to a llow DOE to ad equately as sess co mpliance, cr eate t ransparency t o allow f or ci tizens t o he lp e nforce its requirements, and allow end users to compare products. In their view, efficiency standards for some pr oducts ha ve increased d ramatically, b ut f u r ther i ncreases m ay n ot b e p ractical o r m ay come at t he ex pense o f R & D f o r next g en eration, higher- efficien cy products. H owever, t he process of ensuring compliance should be examined further. In addition, they voiced frustration that there are no certification requirement s in place for these commercial products after all this

time.

B AS IC M ODEL

They agreed that i t is likely to be easier for DOE to build on existing product

- specific definitions than t ry t o f it all pr oducts i nto a single D OE c oncept. For e xample, t here c ould be a pr oduct “family” with many common elements but different energy outputs. They questioned, however,

“[i] f t hat o utput ( capacity) s cales i n a w ell

- behaved w ay (e.g., l inearly, or w ith e fficiency constant with increasing size), should that product “famil y” be part of the same “basic model?”

35 Given t hat nearly a ll p ositions a mong t he a dvocacy c ommunity, c overing b oth e fficiency a nd e nforcement

concerns, were j ointly he ld, s uch views are discussed j ointly (e.g., they), unless otherwise noted. States were not among those participating in the int erview process.DOE Convening Report on Certification of Commercial HVAC and CRE Products, October 2 , 2012

25 VICP S

VICPs should play a role in compliance because as one stated, “ DOE cannot police the entire industry.” They d o not favor DOE's certification system over using a VICP. They agreed that 10 CFR 431.174 pr ovided a vehicle b y w hich pr oduct m anufacturers c ould de velop VICP s that would be accepted b y DOE. But 431.174 h as been r emoved, which w ould s eem t o h ave t he effect of requiring products to be tested to DOE’s regulations

. They asked what the problem is

that w ould r equire t his ch ange. They also voi ced c oncern that removing t he pr ovision may

“ introduce n ew pr oblems t hat w ill be e xpensive t o s olve, w ithout c ommensurately i mproving information reliability or energy savings for consumers.” They noted, however, that they had not

noticed the removal of 431.174 previously in the CCE rulemaking, but had they been aware of it

“ we would h ave r aised this ear lier.” A VICP s hould be a cceptable i f it: ( 1) ensures a l evel playing f ield a nd pr events s ales of non

- compliant pr oducts ; (2) i s accessible t o m anufacturers who c hoose not t o j oin a t rade a ssociation; a nd ( 3) a voids a V ICP monopoly. The i ssues

discussed below are related to the concerns raised above about section 431.174.

AEDM S

AEDMs are acceptable if they can be verifi ed . If DOE can come up with an AEDM that a whole sector of i ndustry c an u se t hat w ould b e h elpful. AEDMs, wi th an appropriate en forcement program, need to be on t he table because they appear to be part of the certification compliance solution. Providing open source compliance software for manufacturers to use to calibrate with

thei r own design models could be quite valuable. In the future, n umbers of models are likely to rise to address niche options that end users demand . AEDMs will , therefore, become increa singly important as proxies to lab testing. This issue was also discussed in the context of the December 31, 2012 certification deadline, as noted below.

T IMING

The de adline s hould be on t he t able t o allow for A EDM u se. O ne p arty as ked w hat en ergy savings are at risk by product class if manufacturers do no t meet the deadline?

S AMPLE S IZE

"We c ompletely a gree with D OE t hat C CE m ust t est e nough pr oducts t o pr ovide a dequate assurance that random units sold in the market comply with the law. We a re less certain that the current D OE regulations a re t he onl y w ay t o pr ovide t he ne cessary assurance. C urrent regulations require testing at least two samples from each ‘ basic model .’ This is hard to do for highly specialized, made

- to

- order products

- and may not be necessary." They said they did not

care if manufacturers are testing one or five products as long as they are meeting the standard.

T ESTING T OLERANCES

There are two reasons to put this issue on the table: (1) to ensure the consumer is getting his /her money's worth ; and (2) if this is an important issue to industry it should be discussed

. But they also n oted t hat t olerances ar e a co mplex i ssue, i n p art because o f t he v arying t olerances (testDOE Convening Report on Certification of Commercial HVAC and CRE Products, October 2 , 2012

26 procedure operating condition ran ge) allowed for different instruments in the test set -up process

. And while it appears that the values chosen were stringent but not onerous when the tests were

set u p , s ince t hen, s ome t est e quipment ha s i mproved. A s a r esult, a p arty “ with g reat te st

equ ipment and a tight manufacturing culture might be able to game the system a bit by using the allowed e quipment to lerances to get b arely passing equipment a lmost a ll th e time , w ith even lower (but still legal) median acceptable minimum test values."

C USTOM IZED P RODUCTS

High vol ume pr oduct s hould be t he f ocus of certification, not l ow yield "one

- off" c ustomized data unless DOE can show there is a certification compliance issue with such products.

T ESTING O RGANIZATIONS

Regarding AEDMs, one lab said they were comfortable with the proposal, while the other said AEDMs are good only for a certain range, but not outside of that range. One party stated that they are not engaged with AEDM s , which is the manufacturer’s responsibility. But the AEDMs

must be valida ted.

The organizations discussed testing issues and challenges , including sampling. The labs , who are paid b y AHR I, 36 rely on its instructions a nd m ethods, a long w ith ope rational a nd i nstallation

manuals. Under the AHRI program, r andom sampling is conducte d by the labs. One lab stated it ran tests on 35 di fferent products for AHRI. One party stated that one of the biggest challenges of te sting f or ma nufacturers to c ertify to D OE is h elping th em lo cate th e c ertification requirements. A nother stated t hat t he fact th at D OE te sters c annot c ommunicate w ith manufacturers c reates p roblems. S ome m anufacturers, e specially t he bi g one s, a re f ine w ith

DOE’s certification statistical calculations. One lab has not heard many complaints on tolerance (test procedure operating condition range) and sample size regarding the AHRI testing program

. Regarding ch allenges t o t he t esting p rocess, the labs e xplained t hat a s equipment ge ts m ore sophisticated it gets harder to run tests. For example, t hey pointed to variable speed uni ts (e.g., 18 SEER or higher , although this is for residential systems ) with sophisticated controls, and one expected there would be even more complex products in the future. Both parties noted there are issues regarding the merits of testing sampling quality versus quantity. But they noted that if you had a bad component, testing the same unit twice will give you the same result.



### P ROCEDURAL 

### I SSUES

Strong O verall Support. With some qualifications and suggestions, all parties thought a reg neg

was w orth trying , and nobody opposed its use

. Indeed, many saw DOE’s willingness to explore reg neg through the convening as a positive and encouraging sign. Many thought reg neg was superior f or t hese m atters c ompared t o t he or dinary notice a nd c omment be cause of t he complexity and interrelated nature of the issues. For example, one party stated that the notice and comment process was not the best forum for the CCE and AEDM rulemakings, and that is why

“there have been false starts” on those matters. Another m entioned that industry is accustomed

36 DOE also contracts with labs for its enforcement testing program.DOE Convening Report on Certification of Commercial HVAC and CRE Products, October 2 , 2012

27 to participating in v arious committees to draft p rivate standards, so this negotiation p rocess is familiar t o t hem. M oreover, de spite s ome c ompeting i nterests, pe ople c an be qui te c reative i n such forums. Others pointed to the process as enhancing communication and understanding of the issues between the parties, which would also benefit DOE. It also better addresses trust and

communication dynamics, particularly between DOE and industry, as discussed in more detail

belo w.

Likelihood of Success Related to Scope . Without exception, all private parties

— manufacturers, end users, and advocacy groups

— agreed that the scope of a reg neg needs to be expanded. Such an expansion would, in their view, maximize the chances of reaching a consensus. O ne party who also agreed a wider scope was preferable noted, however, that t here is a v ery good chance of getting a consensus , even if the scope was limited to certifying for compliance.

The scope expansion recommended by the parti es has three levels:

• First, a party noted the DOE’s initial posture that it w as “not re

- opening the concept of basic model with respect to the resting and rating requirement” was unrealistic. They did not s ee “how you c an t ackle t he i ssue o f certificatio n i f you do not t alk a bout ba sic

model” (see Figure 6, above).

• Second, as one party noted, DOE should not draw an artificial line to isolate certification from t he de adline, A EDM, s ampling, and t esting i ssues. A s one put i t, you cannot separate t he f our issues. “ How c an you c ertify without t esting?” Indeed, a nother pa rty

n oted that i ncluding a ll t hese i ssues us ing a “ holistic a pproach” e nhances t he g roup’s ability t o unde rstand t hese i ssues. S ome pa rties noted t hat A EDM ne eds t o be i n t he scope, s ince i t the onl y means t o comply with c ertification, a nd bot h A EDM and certification are fluid concepts; therefore, it goes a long way to resolving the certification issue. Many parties mentioned that testing was an important part of the certification issue,

while one called it is “the big elephant in the room” (see Figure 7, above).

• Third, the December 31, 2012 de adline is deemed a critical aspect of the scope to most parties. In their view, it is essential to extend the deadline so that all the pieces can be

addressed at once and as a whole.

Once t he pa rties a ssumed, f or a rguments s ake, t hat t he s cope c ould be e xpanded, t hey immediately became more optimistic that the process could lead to a successful outcome. A s a prominent practitioner has observed, it is common for parties with substantive differences to also have different opinions on scope compared to the Agency: the view often looks different to those in the private sector

. 37 One party stated that if “smart people with open minds got together, all

issue s c ould be r esolved.” O thers m aintained t hat w ith m ore i ssues i n pl ay, t here w ere opportunities for many key tradeoffs that are crucial to any compromise.

Only three parties of the 40 i nterviewed were concerned about the chances of success, even if

pro perly scoped, claiming they were “not optimistic” reg neg would be successful. T wo of these parties explained their reasoning. The first asked about the definition of consensus and said it is

37 Philip J. Harter, “Collaboration: The Future of Governance” (Collaboration), Journal of Dispute Resolution , 411,

footnote 56 (2009) (explaining th at p arties may p rioritize issues d ifferently a nd t hat t he co nvening p rocess h elps identify these issues as the foundation for use in the negotiations).DOE Convening Report on Certification of Commercial HVAC and CRE Products, October 2 , 2012

28 impossible t o f ind 100% una nimity, but t hen a greed t hat none thel ess reg n eg h as “ a s hot” at succeeding be cause o f c omplex i ssues t hat c annot be r esolved b y or dinary rulemaking. 38 A second person explained that if the issues are properly framed it may result in helping all sides

understand the goals and methods. Moreove r, while it may not be successful, “ the prospects for success are lessened by insisting on the narrowest possible space for discussion."

Improving R elationships. Many cited a nother i mportant a dvantage t o us ing r eg ne g i s t hat i t provides an ef fective m ean s of he lping t o m end a n “unacceptably poor” r elationship be tween industry and DOE. Several industry parties described this relationship as the worst it has been in 20 years based on t rust and substantive issues. There is widespread concern that DOE’s recen t policies and enforcement strategies have ignored industry’s major needs by dismissing the merits of i ndustry pr actices t hat ha ve be en effective i n pol icing m anufacturers, w ithout ne cessarily making pr ogress t oward a ccomplishing a ny o f DOE’s ow n goals. M oreover, t he r ecent C CE deadline i s s een as un reasonable w ithout A EDMs a nd/or a b etter e xplanation f rom D OE regarding w hat i s an acc eptable b asic m odel. D espite t hese n egative p erceptions o f t he relationship there is a feeling that it is in everyone’s best interest to work together since DOE and industry h ave t o “peacefully coexist.” O thers w ent f urther a nd s aid w ith t he r ight s cope and success using the process, DOE has the opportunity to “transform” its relationship with industry. The parties are not sugge sting the Agency should cave in to their demands, only to be flexible in how i t w orks w ith ot hers t o a chieve i ts goals: Everyone r ecognizes t hat i t i s i n e veryone’s interest to develop a mutually acceptable and effective program that will achieve the statutory goals.

Setting the S tage and D ynamics . There were opinions regarding what was needed to set the stage for negotiations, as well as what one could expect once the parties got to the table. While many believe t he s ubstantive r equirements f or cer ti fication ne ed t o c hange, a pr erequisite f or successful n egotiation f or m any was s uspension of t he c ertification d eadline w hile t alks a re occurring. T his w as de emed a s howing of good f aith b y D OE a nd ensures t he i ssues a re considered collectively

. The process needs to provide an opportunity to resolve ambiguities so that p arties d o n ot a ttempt to a rrive a t th eir o wn in terpretations o f th e me aning o f c ertain requirements. T he r evised s tandard ne eds t o f ocus on a reas of m ajor e nergy s avings a nd not

minor ar eas (e.g., l ow

- volume customization)

. Still, o ne s tated it w ould take d edication b y all parties to achieve positive results. Others predicted that DOE is likely going to be working with a

united caucus of manufacturers and end users.

Role of DOE

. A common statement was that DOE needed to be quite active in providing both

technical 39 and pol icy guidance a nd feedback dur ing t he ne gotiations f or t his pr ocess t o be a success. Indeed, a s P hilip H arter ha s e xplained, t he n eed for t he A gency t o be an active particip ant may appear counterintuitive, but being passive typically “inhibits the committee from

38 It is quite common in convenings for the parties being interviewed to express doubts regarding the likelihood a

consensus proce ss can be effective. Beyond their own experiences with the Agency and other parties, including the substantive issues, this reflects the fact that these are complex, contentious issues. Issues of such character, however, are, s ubject t o a successful conven ing in dicating t he li kelihood o f c onsensus is h igh, well suited to a r eg neg approach.

39 Collaboration at 442 ( describing t he i mportance o f government e xpertise i n r eg negs a nd t he r ole of s enior officials).DOE Convening Report on Certification of Commercial HVAC and CRE Products, October 2 , 2012

29 reaching agreement.” 40 The other common statement was DOE needs to show flexibility and be open minded. To be clear, the need for open

- mindedness and flexibility does not mean that the DOE should modify its substantive goals but rather how it works to achieve them.

Importantly, these concerns go to the potential f or an e ffective rulemaking whether or not the rule is negotiated or developed through traditional notice a nd comment. Their clear implication is that a narrowly drawn proposal will like suffer the same limitations a s earlier efforts.

I NTERESTS TO I NCLUDE

Various opinions were expressed regarding what interests need to be at the table. For example, a few parties saw the need for DOE and industry to be at the negotiating table , but they questioned whether anyone else needed to be. One party voiced concern that environmental advocates would

have a disproportionate a mount of pow er, a nd t his c ould hur t t he l ikelihood of c onsensus. Another questioned the interests of distributors in this matter. Others saw end users as important players to include.

The p arties w ho t hought t esting s hould be on t he a genda a greed t hat t esting l abs s hould b e involved in the negotiations

. There were different opinions, however, regarding precisely what

the l abs ’ interest i s, a nd s ome not ed t hey ha ve a f inancial s take i n r unning m ore tests. B ut another party noted it would be impossible for them to do the testing for a huge amount of new tests that could be required under a DOE basic model definition. Regardless of whether labs are considered t rue p arties with a v ested i nterest i n t he outcome, t hey c ould, s ome s uggested, b e called upon t o answer questions a nd r esearch certain i ssues. For e xample, i f t he c ommittee wanted i deas for addressing t esting t olerances (test procedure ope rating c ondition range), they could suggest additional requ irements, like tighter controls or better testing instrumentation. But they would not be able to indicate how many units would pass or fail based on various levels of tolerance. In sum, an appropriate role could be that of technical advisor to the committe e.



### IV. C ONCLUSIONS AND 

### R ECOMMENDATION

F EASIBILITY OF N EGOTIATED R ULEMAKING

With the pr oper s cope of i ssues on t he t able a n egotiated r ulemaking ap pears t o h ave a g ood likelihood of achieving consensus on a CRE and HVAC rule based on the factors set forth in the Negotiated Rulemaking Act. 41 A major reason why consensus is likely is that the parties believe reg ne g i s s uperior t o n otice a nd c omment r ulemaking f or t hese i ssues. The A ct s ets out t he

criteria an a gency ne eds to c onsider i n de ciding w hether a pa rticular r ule c ould be de veloped using a ne gotiated r ulemaking pr ocess. T hese factors a re w hether: ( 1) there i s a ne ed f or t he rule; (2) there are a limited number of identifiable interests significantly affected by th e rule; (3) a co mmittee can b e created with b alanced representation w ho c an r epresent t he i dentified

40 Collaboration at 431

- 432 (noting that a passiv e posture by the Agency prevents parties from understanding their best alternative to a n egotiated agreement (BATNA), should negotiations fail, and this prevents parties from being able t o judge whether pr oposals be nefit t hem or n ot i n negotiations, t hough they of ten “ keep t alking” t o obt ain clarity from the Agency but ultimately, “do not converge.”

41 5 U.S.C. § 563.DOE Convening Report on Certification of Commercial HVAC and CRE Products, October 2 , 2012

30 interests and can negotiate in good faith; (4) consensus on t he issues appears likely; (5) the reg neg will not unduly delay the issuance of the rule; (6) the agency has resources and is willing to assist the Negotiated Rulemaking Committee; and (7) the a gency, within the constraints of the law, will use the committee’s consensus as the basis of the rule for notice

- and

- comment. These seven factors are augme nted by other non

- statutory factors used by conveners, and are discussed directly below.

Nature of This Dispute. First

, at the outset, to properly analyze these seven factors, particularly what interests are “significantly affected” the convener must understand the scope and nature of the issues. And while, as noted above, it is common for there to be a difference of opinion on the scope be tween an A gency and the parties, the gap between the two here appears quite large (see Figure 7). This dispute centers at the outset, not of the divergent opinions of various parties, but on the scope of issues that should be on t he table. And layered on top of the scope issues are substantive differences in opinion between DOE and its stakeholders. Second, unlike other reg negs that are distributive in nature and tend to divide the industry based on how a new standard or efficiency “number” impacts their market share, this dispute does not divide its stakeholders on the substantive issues to a great degree. Rather, the stakeholders are asking DOE to broadly review its entire enforcement program. Third, another important characteristic at play here is the

g reat degree of regulatory uncertainty due to the upcoming deadline and the uncertain status of the AEDM rule. As noted above, t his convening analysis must necessarily assume the absence of an AEDM rule. Consequently, there are three potential options should DOE wish to explore this

matter further.

A. Conduct Reg Neg with Scope Suggested by DOE

Only one party thought addressing certification alone would be worthwhile. And wh ile all parties interviewed seemed reluctant to dismiss DOE’s scope for a reg neg on its own terms, it was clear they seemed confused by DOE’s intentions in extending an offer to collaborate on this issue, but doing s o w ith a c onfined s cope. T he pa rties believe , i n s um, t hat they are receiving mixed

messages. G iven th e u pcoming c ertificati on de adline, t here i s a s ense of f ear a nd u rgency regarding what DOE might do left to their own devices. In other words, industry would likely be reluctant pa rticipants i n t he di scussions. A nd even i f a c ommittee c ould b e s uccessful i n addressing t his s ole i ssue, t his w ould not r esolve t he c ore i ssues of how t o c omply w ith t he certification requirements given the uncertainty on what constitutes a basic model, including the other i ssues i ndustry d eems i mportant ( e.g., AEDMs, s ample s ize, and t est t olerances ). Therefore, t here is an extremely hi gh risk that a reg ne g addressing this sole issue would fail. Failure might carry a high price, since any trust that was built during the convening stage and potential negotiations would be damaged, since the stakeholders might feel their needs to discuss a broader array of interrelated program issues are being ignor ed. Moreover, s uch parties might be reluctant to engage in a collaborative process with DOE in the future.

In addition to these practical concerns, based on t he reg neg factors, this option also has a high risk o f failure s temming from tw o f actors: first , t he s takeholders p erceive no ne ed for t he particular r ule a s c urrently d efined b y D OE. S econd, t here i s a n e xtremely l ow l ikelihood of success. Indeed, as discussed above, this is true whether or not the rule is developed via reg neg

or notice and comment.DOE Convening Report on Certification of Commercial HVAC and CRE Products, October 2 , 2012

31 B. Conduct Reg Neg W ith S cope Suggested by Stakeholders

If ac ceptable t o D OE , a reg ne g covering certification ( including t he compliance de adline) AEDMs, s ample s ize, a nd t est t olerances, has a f ar h igher likelihood of c onsensus f or t he following reasons

. First, an irony of the scope difference between DOE and the other parties is

that a ll other parties ar e r emarkably w ell al igned o n n early al l o f t he f our substantive issues. Therefore, t he intra -industry divisions th at a re mo st c hallenging based on m ark et s hare

distributi on are n ot a major factor h ere

. Second, al l parties f eel s trongly t hat t he ch ance o f consensus is dramatically higher with all issues in play, pa rtly due to the number of technical tradeoffs possible. Indeed, reg neg practice supports t his belief: the process has been remarkably successful a ddressing m ulti

- faceted i ssues where t here are a s ignificant n umber o f t echnical tradeoffs a nd not m erely driven b y e conomic c onsiderations. In s um, de spite t he num ber of

additional issues that would need to be addressed, the synergy and technical complexity of the

issues does not create added obstacles that would hinder a consensus.

One potential risk in taking on a scope this broad is that the potential complexity could prolong the reg neg and the refore delay issuance of the rule. There is uncertainty regarding DOE’s action (e.g., deadline) that is focusing the attention of the various interests. But uncertainty alone might not prevent delay. The parties seem to uniformly want to resolve this issu e expeditiously. A firm deadline needs to be established for the completion of the consultative/consensus phase of the rulemaking. The deadline should be set to enable DOE to meet its schedule by acting on its own through regular rulemaking.

Beyond the risks there are potentially valuable benefits that go be yond the mere possibility of resolving c ertain c ore s ubstantive i ssues. N amely, t his pr ocess ha s a chance t o r epair t he relationship b etween th e p arties. D espite s ome parties claiming th ey felt th e r elationship w as difficult, the same parties admitted the relationship could change. Importantly, as noted above, many said that w ith the right scope and success using the process, DOE has the opportunity to “transform” its relationship with industry.

A nother co ncern co nsidered h ere i s w hether any party n eeds t o compromise a f undamental

value. 42 Here, n early all HVAC participants ar e m embers o f A HRI ’s p roduct c ertification

program , a nd a pproximately h alf o f th ose in terviewed p articipate in A HRI’s certific ation and verification testing program. Clearly if DOE decided its goal was not to allow VICPs any role in

the certification program , then AHRI’s business model would be threatened. But, despite their differences, there is no indication that DOE seeks to e liminate AHRI. Therefore, a negotiation about t he c ontours a nd r espective role of DOE a nd A HRI ( and ot her pot ential V ICPs) is appropriate.

42 Collaboration at 427

.DOE Convening Report on Certification of Commercial HVAC and CRE Products, October 2 , 2012

32 C. Do a R eg N eg, But O nly i f P refaced b y a Public M eeting to E ducate P articipants an d

Address S cope Concerns

One par ty suggested having a scoping session that was not necessarily part of the reg neg and might oc cur be fore a f inal de cision t o pr oceed o r not i s m ade. T he s ame pa rty, how ever, di d

support a r eg ne g. Unless D OE ha s r eservations a bout pr oceeding w ith a r eg ne g, t his opt ion does not appear to have any advantage over having a robust, prolonged organizational meeting,

so we do not recommend this.

Statutory F actors and Recommendations on P rocess and I nterests. Under t hese c riteria f or assessing t he l ikelihood of success, t he C onvening T eam r ecommends t h at D OE in itiate a negotiated rulemaking process. Despite some disagreement over the certifi cation deadline, most private en tities ag ree t hat more cl arity i s needed r egarding t he de finition of ba sic m odel;

therefore

, a ne w rule i s ove rdue. W hile the n umber o f s ignificantly imp acted e ntities ma y b e substantial, t he num ber of interests is l imited a nd ma nageable

. Therefore , w e b elieve t hat qualified r epresentatives can b e s elected w ho would s peak effectively f or t he d iv ersity o f affected p arties. In addition, a b alanced co mmittee can b e em panelled t hat r epresents t he diversity of interests. In light of a history of delays in issuing a rule to date, it is possible that using negotiated rulemaking may actually expedite, a nd not delay, issuance of a rule. No single party or i nterest a ppears t o ha ve ove rwhelming i nfluence ov er t he out come of t his pr ocess. Consequently, i t i s unl ikely t hat a ny one pa rty w ill be a ble t o a chieve t heir g oals w ithout negotiating given t he c omplexity of t he i ssues (e.g., “end r un” t he p rocess b y access t o congressional leaders).

The A gency has expressed its willingness to support a negotiated rulemaking committee, and has agreed to employ any resulting consensus as the basis for a notice of proposed rulemaking. The Team concludes that, from all indications, the A gency possesses the c ommitment to enable the committee as a whole to produce beneficial results.

While th e T eam b elieves th at n egotiations in th is s etting a re lik ely to be h ighly productive, reaching full a greement may p rove difficult. H ence, w e recommend having an organizat ional meeting to establish groundrules and a substantive agenda for future meetings. G iven that we believe t hese i ssues c an be r esolved be fore a n egotiation i s c ommenced, w e r ecommend t hat DOE proceed with a formal reg neg process described below.

The i n terests i dentified i n t his c onvening w ere d iscussed a bove. B ased on t his c onvening, w e recommend t hat t he f ollowing i nterests s hould b e i ncluded i n t he ne gotiations. M anufacturing concerns of all sizes, including small businesses for both CRE and HVAC, including appropriate trade o rganization r epresentatives

, would r eceive t he f ollowing num ber of s eats on t he

committee: eight (8 ); end users three (3); environmental groups three (3) (efficiency advocates and those vested in the enforcement and transparency o f the requirements).

Many f actors not ed be low ne ed t o be c onsidered i n a ssembling a ba lanced c ommittee. F or

instance , there is a broad array of product offerings within th e manufacturing caucus , including the de gree of customization t hey offer e nd us ers

. Some in terests also d iffer in th e d egree toDOE Convening Report on Certification of Commercial HVAC and CRE Products, October 2 , 2012

33 which they rely on i n

- house vs. outside testing. In addition, their reliance on e xisting VICPs is another di stinguishing f actor. While s tates w ere co ntacted f or t his an alysis, n one ap peared willing to p articipa te i n t he i nterview p rocess. This unw illingness a ppeared t o be s trongly influenced by competing priorities and resource issues. Hence, w e also recommend two (2) states with varying attributes be offered seat s on the committee. The testing labs can clearly add value

and technical a dvice t o t he de liberations, and we r ecommend t hey p articipate as t echnical advisors, not committee members.

Parties seeking to participate in a reg neg may assume that having more seats at the table ensures

the ir in terest can p revail o ver the min ority view should i ssues be come d eadlocked. T his vi ew misses the point of how consensus operates. 43 Given that every party has a veto in a consensus

based pr ocess, w hile t hose m ost s ignificantly i mpacted s hould ha ve br oad r epresentation to ensure their points of view and needs are accounted for, they need to understand that the nature of t heir pa rticipation i s representational. In f act, t hey do not r epresent onl y t hemselves, but a broader interest (e.g., CRE). And many parties that are not on the committee (e.g., constituents and technical advisors) can nonetheless participate through their representatives. Participation of each interest has been described as a “wedge,” as depicted in Figure 9, below.

Figure 9: The “Wedge” of Interests (Prepared by Philip J. Harter, 1990)

43 Collaboration at 424 ( discussing h ow r epresentation assures a ll i nterests will b e r aised, which is c ritical to ensuring minority views are not ignored).DOE Convening Report on Certification of Commercial HVAC and CRE Products, October 2 , 2012

34 Next Steps

If the Agency decides to move forward with a negotiated rulemaking process, its next official step w ould be t o publ ish i n t he Federal R egister a n otice o f in tent to f orm a n egotiating

committee. The Negotiated Rulemaking Act provides that the A gency must then allow 30 days for comments on the proposal and for applications for committee membership.

Regardless of whether it decides an additional public meeting to scope the issues is warranted,

th e c ommittee s hould conduct a n or ganizational m eeting. At th e o rganizational me eting, committee membership would be finalized; organizational ground rules developed to define how the c ommittee w ill o perate a nd b e s tructured; the p articipants w ould engage in a “s coping session” to develop those issues that need to be considered (and, the flip side: what issues will

not be on t he table); and the group would identify data that will be needed and consider how it will be de veloped. A fter t hose i ssues a re c onsidered, t he c ommittee w ould de cide w hether i t would be helpful to use work groups to address some issues; the deliberations and suggestions of these w ork gr oups w ould t hen be r eviewed b y t he c ommittee a nd i ntegrated i nto i ts ow n decisions. The organizational meeting would also serve to introduce the participants, determine if there are others who should be on t he committee, set an agenda for the committee’s work, and establish t he pr ocedures t hat w ill g overn s ubsequent m eetings of t he ne gotiated r ulemaking

comm ittee.DOE Convening Report on Certification of Commercial HVAC and CRE Products, October 2 , 2012

35 

## A PPENDIX 

## A

T HOSE 

### I NTERVIEWED 

### D URING CONVENING 

### P ROCESS FOR 

### H EATING 

### , V ENTILATING AND 

### A IR 

### C ONDITIONING 

### E QUIPMENT

Association N AME

CUACs

Carrier John Mandyck

Robert Whitwell

Mead Rusert

Karin Namislo

Richard Lord

Mark Rabbin

Johnson Controls (York) Steven Maddox

Jeff Nichol

Mitsubishi Electric Paul Dopple Jay Perkins

Trane Jordan Doria

Jill Hootman

Nordyne Dan Arnold

Goodman Gary Clark

Bard Wes Roan

Rheem Karen Meyers

Keith Grahl Robert Long

PTACs

Friedrich David Lingrey

RetroAire /ECR Dan Adams

SPVUs

Bard Wes RoanDOE Convening Report on Certification of Commercial HVAC and CRE Products, October 2 , 2012

36 Marvair Thompson Matambo

Paul Mechler

Modine Robert Linstroth

Commercial Furnaces

Rheem (see above)

Carrier (see above)

Trane (see above)

Heal Controller Roxanne Scott

Commercial Boilers

A.O. Smith Charlie Adams

Lochinvar Neil Rolph

Trade Associations

Air Conditioning, Heating and Karim Amrane Refrigeration Institute David Calabrese Aniruddh Roy

Frank Stanonik

Bill Tritsis

Jon Lemmond

Heating, Air Conditioning & Refrigeration Talbot Gee

Distributors International John Melchi

Test Labs

Intertek Mike Stem

Mark Menzer Byron Horak

Robert Fisher

Underwriters Laboratories Neil Ferrill

Brian Ferriol Mike Kojak

Mike ShowsDOE Convening Report on Certification of Commercial HVAC and CRE Products, October 2 , 2012

37 Claire Kammer

Shawn Nelson

Advocates

American Council for an Energy

- Efficient Harvey Sachs
Economy Harr y Misuriello

Johanna Mauer

Appliance Standards Awareness Project Andrew Delaski

Earth Justice Tim Ballo

Northwest Energy Efficiency Alliance Louis Starr

End Users

Disney Martin Cowley

Food Lion Wayne Rosa

McDonalds

Whole Foods Bob Beecroft

Matt Rollins Martin Tyler

Kathy LoftusDOE Convening Report on Certification of Commercial HVAC and CRE Products, October 2 , 2012

38 

## A PPENDIX 

## B

T HOSE 

### I NTERVIEWED 

### D URING CONVENING 

### P ROCESS FOR 

### C OMMERCIAL



### R EFRIGERATION 

### E QUIPMENT

Association N AME

CREs

True Manufacturing Charlie Hon

Traulsen Joe Sanders

Walt Boryca

Zero Zone Carl Roberts

Dave Morrow

Bruce Herlmeier

Manitowoc/ Delfield Rick Seiss

Hill Phoenix Larry Howington

Hussmann Ron Shebik

Brad Bene

Structural Concepts Viktor Anderson

Jason Paket

Rob Date John Murray

Master

- Bilt Products Kenny Owen

Southern Store Fixtures

Trade Associations Massoud Neshan

Air Conditioning, Heating and Karim Amrane Refrigeration Institute David Calabrese Aniruddh Roy

Frank Stanonik

Bill Tritsis

Jon LemmondDOE Convening Report on Certification of Commercial HVAC and CRE Products, October 2 , 2012

39 National Association of Convenience Michael Lawshe

Stores John Eichberger Lindsay Kutac

Test Labs

Intertek Mike Stem

Mark Menzer Byron Horak

Robert Fisher

Underwriters Laboratories Neil Ferrill

Brian Ferriol Mike Kojak

Mike Shows

Claire Kammer

Shawn Nelson

Advocates

American Council for an Energy

- Efficient Harvey Sachs
Economy Harr y Misuriello

Johanna Mauer

Appliance Standards Awareness Project Andrew Delaski

Earth Justice Tim Ballo

Northwest Energy Efficiency Alliance Louis Starr

End Users

Disney Martin Cowley

Food Lion

McDonalds Wayne Rosa

Bob Beecroft

Matt Rollins Martin Tyler

W hole Foods Kathy LoftusDOE Convening Report on Certification of Commercial HVAC and CRE Products, October 2 , 2012

40 

## A PPENDIX 

## C

US Department of Energy’s Regulatory Negotiation Convening on Commercial Certification for Heating, Ventilating, Air

- Conditioning, and Refrigeration Equipment Public Information for Convening Interviews

I. What are the substantive issues DOE seeks to address?

• Strategies for grouping various basic models for pur poses of certification;

• Identification of non-efficiency attributes, which do not impact the measured consumption of the equipment as tested by DOE’s test procedure;

• The information that is certified to the Department;

• The timing of when the certification should be made relative to distribution in commerce; and

• Alterations to a basic model that would impact the certification.

II. What is a negotiated rulemaking and the convening process? Negotiated rulemaking (often called “reg neg”) is a consensus process governed by the Negotiated Rulemaking Act (NRA)(5 USC §§ 562-570). In a reg neg, a balanced group of stakeholders, chartered as a committee under the Federal Advisory Committee Act (FACA), works with the agency to negotiate text of a notice of prop osed rulemaking (NOPR). If a consensus emerges from negotiations, all committee members, including the agency, would agree to support it. Next, a regular notice-and- comment process takes place under the Administrative Procedure Act. While many fewer public comments would likely be received than in an ordinary rulemaking, since most interested entities would have participated in developing the proposal, the agency nevertheless would be required to address any comments in the

same manner as with a standard NO PR process.

Prior to deciding to move forward with a reg neg, an agency must determine whether the subject of the rulemaking is appropriate for a reg neg (NRA§ 563). A convening, conducted by a neutral party, the convener, is a feasibility assessment of the likelihood a consensus process can be successful, and it identifies and recommends the key parties to invite to join the committee. Specifically, as provided by the NRA, the convener identifies parties that will be “significantly affected” by the NOPR and assists the agency to determine whether establishing a committee is “feasible and appropriate” (NRA § 563). The convener synthesizes the interviews in a convening report without attribution, to ensure the parties’ views can remain confidential. The pa rties interviewed, however, will be listed in an appendix to the report.

III. What assurances do I have that the convener is a neutral party that will maintain the confidentiality of

our communications? Under the NRA and other legal authorities, confidentiality of the information gathered during the convening is a key cornerstone to ensure success of the process. The convening is a candid exchange between the convener and interested parties, including the agency. The goal of convening is to provide the best data upon which the agency can decide whether and how to proceed with a reg neg.

DOE’s policy on the confidentiality of communications with a neutral convener in a reg neg, regardless of whether they are a private contractor or federal employee, is based on the Administrative Dispute Resolution Act (ADRA)(5 USC §§ 571-584). Under the ADRA, the convener of a reg neg is prohibited from disclosing, and cannot be forced to disclose, communications related to the reg neg, with limited exceptions. The ADRA also includes an exception that protects documents held by the convener from disclosure under the Freedom of Information Act. Consequently, based on the ADRA, it is DOE’sDOE Convening Report on Certification of Commercial HVAC and CRE Products, October 2 , 2012

41 policy that the convener’s notes and other communications with the parties will not be disclosed to DOE or the public. In addition, as required by the NRA, parties must trust the convener is impartial and independent. In fact, the NRA requires DOE to determine t hat a neutral convener has “no financial or other interest that would preclude [him] from serving in an impartial and independent manner” (NRA § 568). Based on the desire to ensure the confidentiality of communications with the convener and that the convener is indeed impartial and independent, DOE has chosen to utilize Alan Strasser as the convener. This selection is based on Mr. Strasser’s proven experience in the private sector as a neutral convener on several negotiated rulemakings, including an effort in 1999 on residential central air conditioners. Mr. Strasser is currently a regulatory attorney at the Department of Transportation working on detail at DOE. For his detail, Mr. Strasser primarily supports DOE’s General Counsel’s Office advising on regula tory programs, and on a limited basis has advised on enforcement matters. DOE has determined that Mr. Strasser has “no financial or other interest that would preclude [him] from serving in an impartial and independent manner” (NRA § 568).

In addition to safeguards outlined above and adopted in DOE’s policy based on the NRA and ADRA, DOE has established rigorous communication protocols to ensure Mr. Strasser does not communicate with, nor will be contacted by, any DOE employees regarding the content of th e discussions with stakeholders; instead, he will only be able to disclose information presented in the convening report, and only then, in a manner that protects the anonymity of interviewees. Furthermore, DOE has ensured that Mr. Strasser is not assigned to work on any matters regarding the residential or commercial air conditioning industry or the residential or commercial refrigeration equipment industry, and will not work on this rulemaking beyond the convening stage. Finally, DOE has required Mr. Stra sser to follow detailed protocols regarding documentation developed or received in the course of the convening. First, he will destroy all personal notes developed during the convening interviews once the convening report is issued to DOE and the public. S econd, if federal law requires that Mr. Strasser maintains federal records, they will be maintained in a manner that will ensure that they will not be disclosed. Third, if parties provide documents to Mr. Strasser during the convening process, he will return them upon request once the convening report is issued to DOE and the public. A contractor for the Department of Energy will serve as an assistant to Mr. Strasser in the convening process, and is similarly considered a neutral convener; therefore, s/he i s also governed under all the laws and safeguards as described above.

Mr. Strasser’s role in the convening process is prescribed by the NRA. He will ask each party questions in order to determine the likelihood the parties can converge on the issues. Beyond attempting to gauge the feasibility of moving forward, Mr. Strasser’s questions will also be aimed at defining the subject and scope of the negotiations. Once the issues are identified, Mr. Strasser will ask participants what persons are qualified to “represent the significantly impacted interests” (NRA § 563). Should he recommend to DOE that a reg neg is feasible, he will provide a list of recommended parties who would be empanelled in a committee. Following the interviews, Mr. Strasser will provide a convening report to DOE, all parties that were interviewed, and the public. If DOE wants to move forward with a reg neg, it must then publish a Notice of Intent, which includes an opportunity for comment on membership of the proposed committee and allows any person to apply to be nominated as a committee member. DOE must also file a charter under FACA before it formally establishes a negotiating committee.

IV. Who do I contact for more information? For questions about the convening process, contact Mr. Strasser, the convener, at 202- 586-8269. For legal questions, contact Daniel Cohen, Assistant General Counsel for Legislation, Regulation and Energy Efficiency, at 202-586-9523.DOE Convening Report on Certification of Commercial HVAC and CRE Products, October 2 , 2012

42 

## A PPENDIX 

## D

Example

Efficiency Standard
(e.g., CUACs) Consumption Standard
(e.g., CREs)
Sample Data 12.35 12.8

13 13

13 13

12.9 13

12.9

Mean 12.8125 12.94

Standard Deviation 0.311916121 0.089442719

Standard Error 0.155958061 0.04

Certification

DOE Standard 13 13

Confidence Interval 0.9 0.9

Cert Divisor 0.95 1.05

t value 1.637744354 1.637744354

LCL 13.21797954 UCL 12.38619978 

### Generate rating between minimum and maximum values Determine minimum and maximum rating values Consumption Standards: xbar or UCL (whichever higher) ↔ Standard Efficiency Standards: Standard ↔ xbar or LCL (whichever lower) 

### Calculate product specific certification statistics, 429.14

- 429.54

Commercial: 431 Sample Mean ( xbar ) Upper Confidence Limit (UCL) Lower Confidence Limit (LCL) 

### Determine which Federal conservation standards apply to the product

Commercial equipment: 431 

### Test at least two units of a basic model using the DOE test procedure