CAS-RM-78-110 COMMENT 10

Tuesday

August 30, 1983

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Office of Conservation and Renewable

Energy

Energy Conservation Program for

Consumer Products; Final Rule for

Refrigerators and Refriger or-Freezers,

Freezers, Water Heaters, Room Air

Conditioners, Furnaces and Central Air

Conditioners

prIm

Energy

nt of
 CAS-RM-78-110 COMMENT 10

Federal Register / Vol. 48, No. 169 / Tuesday, August 30, 1983~ / Rules and Regulations iZ

39376

DEPARTMENT OF ENERGY

Office of Conservation and Ren~wable

Energy

10 CFR Part 430

[Docket No. CAS-RM-78-110l

Energy Conservation Program for

Consumer Products; Final Rule for

Refrigerators and RefrigeratorFreezers, Freezers, Water Heaters,

Room Air Conditioners, Furnaces and

Central Air Conditioners

AGENCY: Office of Conservation and

Renewable Energy, Energy.

AC1·ION: Final rule.

SUMMARY: As a general matter, the

Energy Policy and Conservation Act, as

amended, requires the Department of

Energy to prescribe an energy efficiency

standard for each of thirteen major

household appliances, unless DOE

determines by rule that a standard for a

product will not result in significant

conservation of energy, is not

technologically feasible, or is not

economically justified. Under the Act,

any Federal rule, whether prescribing a

standard or determining no standard,

would preempt State and local

standards and any other requirements

with respect to energy efficiency or use

of these products.

On April 2, 1982, DOE published a

proposed rule that would determine that

for eight products an energy efficiency

standard would not result in significant

conservation of energy or be

economically justified. The April 2'

proposed rule also proposed procedures

governing how States could petition for

exemption from the preemption of State

and local efficiency or energy use

standards and how manufacturers could

petition to preempt State or local

efficiency or energy use standards for

which there were no preempting Federal

rules.

DOE published a final role on

December 22, 1982, with respect to

clothes dryers and kitchen ranges and

ovens, two of the eight products covered

by the April 2 notice, in which DOE

determined that an energy efficiency

standard for either of these products

would not result in significant

conservation of energy and would not

be economically justified. In addition,

DOE adopted at that time final

procedures governing State and

manufacturer petitions.

Today's final rule reflects DOE's final

determinations with respect to the other

six products: refrig·erators and

refrigerator-freezers, freezers, water

heaters, room air conditioners, fumaces

and central air conditioners. For each of

these products, except"central air

conditioners, DOE finds that an energy

efficiency standard would not result in

significant conservation of energy and

would not be economically justified.

With respect to the sixth product,

central air conditioners, DOE finds that

an energy efficiency standard would

result in a significant conservation of

energy but would not be economically

justified.

DATES: Except for section 430.32, the

effective date of this rule is September

29, 1933. Section 430.32 is effective

February 27, 1984, except in a State that

has filed pursuant to Subpart D a notice

of petition before October 31, 1983, and

a petition before December 28, 1983. The

effective date of § 430.32 for States that

have filed a petition is thirty days from

the date on VJhich DOE issues or denies

a final rule concerning that petition.

FOR FURTHER INFORMATION CONTACT:

Michael J. McCabe, U.S. Department of

Energy, Office of Conservation and

Renewable Energy, Mail Station CE112, Room GH-068, Forrestal Building,

1000 Independence Ave., SW.,

Washington, D.C. 20585 (202) 252-

9127.

Lona Feldman, Assistant General

Counsel for Conservation and

Renewable Energy, U.S. Department

of Energy, Mail Station GC-33, Room

6B-144, Forrestal Building, 1000

Independence Ave., SW., Y.Jashington,

D.C. 20585 (202) 252-9507.

_SUPPLEMENTARY INFORMATION:

I. Introduction

Q. Authority

Part B of Title ITI of the Energy Policy

and Conservation Act (EPCA), Pub. L.

94-163, as amended by the National

Energy Conservation Policy Act

(NECPA), Pub. L. 95-619,1 creates the

Energy Program for Consumer Products

other than Automobiles. The consumer

products subject to this program (often

referred to hereafter as "covered

..,products") are: refrigerators and

refrigerator-freezers; freezers:

dishwashers: clothes dryers: water

heaters; room air conditioners; home

heating equipment, not including

furnaces: television sets; kitchen ranges

and ovens; clothes washers; humidifiers

and dehumidifiers; central air

conditioners; and furnaces, as well as

any other consumer product classified

by the Secretary of Energy, if the

product uses a specified minimum

amount of energy. See section 322. The

Secretary has not so classified any

additional products.

1 Part B of Title ill of EPCA, as amended by the

NECPA, is often referred to in this notice 8S the

"Act." Part B of Title III is codified at 42 U.S.C. 2691

et seq.

Under the Act the program consists

essentially of three parts: testing,

labeling, and mandatory minimum

energy efficiency standards. The

Department of Energy (DOE or

Department), in consultation with-the

National Bureau of Standards, is

required to establish test procedures for

each of the covered products. Section

323(a)(2). The purpose of the test

procedures is to provide for test results

that reflect the energy efficiency, energy

use, or estimated annual operating costs -

of each of the covered products. Section

323(b)(1). All test procedures were

required to be adopted not later than

May 1, 1978. Section 323(a) (4) and (6). A

test procedure is not required if DOE

determined by rule that one could not be

developed. Section 323(a)(6)(B).One

hundred and eigthty days after a test

procedure for a product is adopted, no

manufacturer may represent the energy

consumption of or the cost of energy

consumed by the product except as

reflected in a test conducted according

to the DOE procedure. Section 323(c).

Test procedures have been prescribed

relating to all products, but, on the basis

of continuing review, certain classes of

products do not have currently

applicable test procedures.

The Federal Trade Commission (FTC)

is required by the Act to prescribe rules

governing the labeling of the covered

products for which test procedures have

been prescribed by DOE. Section 324(a).

These rules are to require that each

particular model of a covered product

bear a label that indicates its annual

operating cost and the range of

estimated annual operating costs for

other models of that product. Section

324(c)(1). A rule is not required under

section 324 if the FTC determines that

disclosure of estimated annual operating

costs is not likely to assist consumers in

making purchasing decisions or is not

economically feasible. Section 324(c). At

the present time there is an FTC rule

requiring labels under the Act for the

following products: room air

conditioners, furnaces, clothes washers,

dishwashers, water heaters, freezers,

and refrigerators and refrigeratorfreezers. 44 FR 66475 (November 19,

1979). The ITC has proposed a rule to

require labels for central air

conditioners. 45 FR 53340 (August 11,.

1980).

For each of the covered products,

DOE is required to establish mandatory

energy efficiency standards that are

designed to achieve the maximum

improvement in energy efficiency that is

technologically feasible and

economically justified. Section 325(a)(1)

and (c). The Act provides, however, that
 CAS-RM-78-110 COMMENT 10

· Federal Register I Vol. 48, No. 169 I Tuesday, August 30, 1983 I Rules and Regulations 39377

no standard for a product is to be

established if there is no test procedure

.for the product, or if DOE determines by

rule either that establishment of a

standard would not result in significant

conservation of energy or that

establishment of a standard is not

technologically feasible or economically

justified. Section 325{b). In determining

whether 'an energy efficiency standard is

economically justified, the Department

is directed to determine whether the

benefits of the standard exceed its

burdens by weighir...g six specific factors, '

as well as any other factors DOE

considers relevant. Section 325(d). The

factors are: (1) The economic impact of the

standard on the manufacturers and on

the consumers of the product subject to

such standard;

". (2) The savings in operating costs

throughout the estimated average life of

the covered product in the ty-:pe (or

class), compared to any increase in the

price of, or in the initial c~arges ior, or

maintenance expenses of the covered

products which are likely to result from

the imposition of the standard;

(3) The total projected amount of

"energy savings likely to result directly

from,the imposition of the standard;

(4) Any lessening of the utility or the

performance of the covered products

likely to result from the imposition of the

standard;

(5) The impact of any lessening of

competition, determined in writing by

the Attorney General, that is likely to

result from the imposition of the

standard; and "

(5) The need of the f--iaUon to conserve

energy.

A rule establishing an energy'

efficiency standard for a product shall

set different levels of efficiencies for

different classes 2 of that product if they

use a different kind of energy or have

different capacity or performance

related features that justify different

levels of efficiencies. Section 325(f).

The Act specifies the priorities and

pr.6cedures to be followed in adopting

effIciency standards. Nine of the 13

covered products are given priority

under the Act. Section 325(g). These nine

products are: refrigerators and

refrigerator-freezers, freezers, clothes

dryers, water heaters, room air

conditioners, home heating equipment

(other than furnaces), kitchen ranges

and ovens, central air conditioners, and

furnaces.

The procedures include a requirement

for an advance notice of proposed

rulernaking upon which interested

2 Each covered product category may be made up

of several classes,

persons may make written comments.

Section 325{i)(1). Thereafter, there is to

be anotice of proposed rulemaking,

upon which interested persons may

make written and oral comments,

including an opportunity to question

those who make such comments with

respect to disputed issues of material

fact. Section 325(i)(3) and section

336(a)(1).

Section 327 of the Act addresses the

effect of Federal rules concerning

testing, labeling, and standards on State

laws or regulations concerning such

m8tters. Generally, all such State laws

or regulations are superseded by ~e

Federal rule. Section 327(a). A rule by

DOE that an efficiency standard is not

technologically feasible, economically

justified, or likely to save significant

amOlL.l"lts of energy is a rule" that

supersedes'any State standard. Section

325(b). Ii, because there is no Federal

rule, a State efficiency standard is not

superseded, persons subject to it may

petition DOE to have it superseded on

the basis that t..here is no significant

State or local interest sufficient to justify

the regulation and such regulation

unduly burdens interstate commerce.

Section 327(b)(1). A State whose energy

efficiency standard is -superseded may

petition the Department for a rule that it

not be superseded, on the basis that

there is a significant State or local

interest to justify the standard and the

State standard is a stricter standard.

However, DOE cannot issue the

requested rule if the State standard

would unduly burden interstate

commerce. Section 327(b)(3).

b. Background

The DOE published its advance notice

of proposed rulemaking pursuant to

section 325(i) for the nine first priority

products on January 2, 1979. 44 FR 29.

On December 13, 1979, the DOE

published an advance notice of

proposed ru.lemaking for dishyvashers,

television sets, clothes washers, and

humidifiers and dehumidifiers. 44 FR

72276. An advance notice for central air

conditioners (heat pumps) was

published on January 23,1980.45 FR

5602. These advance notices were

designed to present a full discussion of

the Department's views concerning the

standards program and the process for

its implementation. DOE also set forth

its views concerning the eriteria for

selecting classes in each product type

and the maximum technologically

"feasible efficiency standard for each

class of product. DOE specifically

requested comments on all matters

presented in the advance notices. Public

meetings were held throughout 1979 and

1980 to solicit the views of all concerned

parties.

After 'receiving comments on the

advance notices, on June 30, 1980, the

DOE set fortll; its first proposed

rulemaking for the nine products, 45 FR

43976, (hereafter referred to as the June

1980 proposal). The June 1980 proposal

set forth the DOE's proposal concern.ing

energy efficiency standards for these

covered products. It also proposed

procedures for processing petitions by

States that sought exemption for

regulations subject to the general

preemption requirements of Section

327(a) of the Act. The June 1980 proposal

considered comments received in

response to the advance notice on these

nine products and made changes in the

DOE's initial determinations concerning

classes for each covered product and

the methods for determining enerWj

efficiency standards. The June 1930

proposal was based upon five technical

support documents which were made

available for public review.

To encourage public participation in

the rulemaking process, the DOE held a

series of public meetings and hearings,

starting in July 1980. Public hearings

were conducted in Chicago and

vVashington in August 1980. As a result

of,these hearings and the solicitation of

written comments, over 1,800 comments

"vere received on the June 1980 proposal.

These comments addressed all aspects

of the rulemaking proposal including L"'1e

establishment of classes in each covered

product type, the feasibility of the

standards selected for each covered

product, the validity of the assumptions

made in the technical support

documents. the procedure for seeking

exemptions for State regulations, from

preemption by the Federal standard, the

effective date of a final regulation, the

_propriety of standards for small

businesses, whether alternatives to

regulations were practical, and the

proposal for certification and

enforcement procedures.

On December 17,1980, the

Department notified the Congress of its

inability to make a final determination

on the imposition of energy efficiency

standards on the nine covered products

by the statutory deadline of January 2,

1981. On February 23, 1981, DOE

published a notice of its intent not to

issue any energy efficiency standard

until it fully studied the comments

received on the June 30 proposal and

made a thorough reassessment of the

data supporting the proposal. 46 FR

13517.

On April 2, 1982, DOE issued a further

notice of proposed rulemaking with

respect to thH nine priority products, 47
 CAS-RM-78-110 COMMENT 10

39378 Federal Register I Vol. 48, No. 169 I Tuesday, August 30, 1983 / Rules and Regulations D±

FR 14424 (hereafter referred to as the

April 1982 proposal). With respect to

eight of the products DOE proposed to

make a determination that a standard

would not result in significant

conservation of energy and would not

be economically justified. 3 The April

1982 proposal also proposed rules

governing petitions to DOE both. by

States to obtain exemption from

preemption of State or local energy

efficiency standards as well as by

manufacturers to obtain preemption of

State or local standards. Two technical

support documents-an Economic

Analysis (EcAD) and an Engineering

Analysis (EnAD)-supported the

proposal.

Hearings were held on the April 1982

proposal over three days in Washington,'

D.C., in which 39 persons presented

statements. Over 130 written comments

were received during the initial

comment period, and 36 additional

written comments were made on earlier

submitted comments.

In October 1981, the Natural

Resources Defense Council (NRDC) and

Consumers Union of the United States,

Inc., brought suit against DOE for DOE's

failure to adopt a final rule for the nine

priority products by the statutory

deadline of January 2, 1981. A settlement

agreement adopted by the parties

required DOE to adopt a final rule for

these products (except home heating

equipment, other than furnaces) by

October 29, 1982. The agreement

provi9.ed, however, for a modification of

that deadline for good cause as

approved by the court. Nevertheless, the

agreement required that, if the entire

rule could not be adopted by October 29,

DOE would issue those portions of the

rule for which determinations could be

made.

Consequently, on December 22, 1982,

DOE published a final rule in which the

Departnlent deterrnined that energ'f

efficiencv standards were not vlarranted

for cloth~s dryers and kitchen ranges

and ovens. 47 FR 57198. (Hereafter

referred to as the December 1982 final

rule.) 4 At that time, DOE also adopted

final procedures by \!vhich States 'might

obtain exemption for State or local

efficiency standards from Federal

preemption and by which manufacturers

3 The April 1982 proposal did not propose any

rule with respect to the product type "home heating

equipment, not including furnaces" or with respect

to that class of the product water heaters made up

of heat pump water heaters or with respect to those

classes of the product central air conditioners that

are heat pumps.

.. The preamble to the December 1982 final rule is

part of the record of this rulemaking, and DOE

hereby incorpora tes it by reference.

might obtain preemption of a State or

local standard not otherw;se preempted.

In light of DOE's failure to adopt a

final rule by October 29, 1982, the NRDC

filed a motion on November 29, 1982,

requesting the court to order DOE to

promulgate final rules for all eight

products by January 29, 1983. In this

Inotion NRDC argued that, while NRDC

believed the Oak Ridge National

Laboratory Residential Energy End Use

Model (ORNL Model) to be deficient,

DOE could not take additional time to

conduct further analyses or make nay

corrections. As DOE noted in

responding to the court, the ORNL

Model has been used since before June

1980 to determine the energy savings

attributable to standards, a necessary

determination whether the conclusion is

to promulgate a substantive standard or

a no-standard standard. It was not until

the comments on the April 1982

proposed rule, however, that l.'.JRDC and

others raised. objections to the particular

aspect of the Model that has drawn the

greatest attention in this rulemaking.

These objections were not dismissed

out-of-hand but rather were considered

and analyzed. Consequently, as noted in

the December 1982 final rule, DOE was

unable to make the October 29, 1982

deadline for a final rule for all eight

products.

As indicated infra, DOE's analysis

and review of the ORNL Model is an

ongoing matter. In entering into a further

settlement agreement with NRDC to

issue these rules, DOE did not mean to

suggest that all questions would have

been resolved and all doubts dispelled

concerning the Model. For reasons

discussed at length infra, however, DOE

concluded that within the time

constraints of the Act, as enforced by

f'oJHDC, Consumers Union, and the court,

the ORNL Model as used in this rule is

the most reliable and objective means of

detern1ining energy savings attributable

to a standard. 5

(') NRDC, in a letter dated May 4, 1983, alleged that

on March 28, 1983, the Assistant Secretary for

Conservation and Renewable Energy met with

representatives of the Association o.f Home

Appliance Manufacturers (AHAM) and discussed

this pending rule. While a meeting did take place,

the discussion did not involve this rule but rather

two aspects of the final rule adopted December 22,

1982-the standards upon which petitions for

exemption from preemption would be judged and

the precentage test for determining whether a given

level of energy savings is significant. No change has

been made in the standards or tests announced in

the December 1982 final rule, nor would DOE

consider any such changes without a further

rulemaking on the subject.

II. General Discussion

a. General

As indicated above, this rulemaking,

begun in January 1979, has been a

lengthy and complex process. Millions

of dollars have been spent by DOE in

furtherance of the rulemaking;

manufacturers, interest groups, and

States have gone to great efforts not

only to make known their views on the

ultimate questions but also to expand

both the data base and analytical

criteria upon which the rulemaking is

bas-ed. Accordingly, DOE wishes to

thank all those who participated in the

rulemaking for their efforts. Even where

comments or recommendations were not

adopted, the comments improved the

process and·assured that the final

decision would be based on a full

consideration of all the relevant factors.

Some commenters expressed their

belief that DOE had prejudged the

outcome of this rulemaking because of .

an inflexible policy commitment to

avoiding mandatory appliance

efficiency standards. DOE has

acknowledged ~ts general view that the

marketplace, together with accurate

consumer information, is more effective

in improving appliance efficiency than

are ·mandatory appliance standards.

DOE, however, has confined its action

upon this view to support of legislation

that would repeal section 325 of the Act.

DOE's consistent policy, moreover, JIas

been that it must and will faithfully

execute the law in the absence of any'

such congressional action. Thus, no

prejudgement has been made in this

rulemaking. The decisions have been

founded on the record in accordance

vtJith the statutory terms and

requirements.

The record, however, has changed

substantially from the record before

DOE in June 1980 when substantive

standards were proposed for all

products. As comments to the June 1980

proposal made clear, that proposal was

widely criticized. In 1980, both the

Justice Department and the White

House's Regulatory Analysis Revievv

Group severely criticized the eco:q.omic

analysis that underlay that proposed

rule. The General Accounting Office has

also criticized it. See Improved Quality,

Adequate Resources, and Consistent

Oversight Needed if Regulatory

Analysis is to Belp Control Costs of

Regulations (1982), at 12. As a result of

these and other comments, a number of

changes were made to both the

economic and engineering analysis,

changes that were fully explained in the

April 1982 proposal and supporting

documents. With few exceptions, these
 CAS-RM-78-110 COMMENT 10

Federal Register I Vol. 48, No. 169 I Tuesday, August 30, 1983 I Rules and Regulations ,L2& ac:::;~.&&&2. ,,&iAYt&4 £JJLJ &&Z...a;a;; 41 MilS" 4

39379

changes were. not criticized in the

comments on the April 1982 proposal. 6

As a result of cOIIL.TTl.ents on the April

1982 proposal. further changes were

made or responses have been made

indicating why DOE did not ad'opt the

comment.7

As a result of all of these changes, the

data generated by the various models

and analyses have changed

substantially from those in June 1980.

Where required by changes in the data,

of course, the conclusions to be drawn

from the data have changed as well.

b. Maximum Technological Feasibility

Some commenters criticized DOE in

its selection and use of criteria in the

&."'1gineering Analysis for choosing

design options. and candidate standard

levels. These conunenters argued that

the predicted energy savings in the

standards case would have been greater

had DOE considered a broader range of

options.

The comments on the Apri11982

proposal addressed three issues: that

DOE limited its consideration of

possible standards levels to efficiency

levels already in the marketplace,

thereby ignoring advaD:ced technologies

that were available in prototype or

could be developed; that DOE failed to

consider some high efficiency products

already in the marketplace; and that

DOE restricted consideration to U.S.

models only.

Maintaining that DOE should revise

its criteria to include prototypes that

could be available by 1987, NRDC, the

Anlerican Council for an Energy

Efficient Economy (ACEEE) and others

contend that high efficiency prototype

appliances have been developed and

tested that substantially surpass, some

by 26 percent, the efficiency levels of

those currently on the market.

Consumers Union added that the

Engineering Analysis ignores the 5 year

period manufacturers would have to

bring products into compliance.

DOE has fully conside.red the

comments suggesting L1.at minimunl

energy efficiency standards should be

analyzed at levels in excess of models

available in the market, but has

determined that the P;.ct does not require

such analyses. First, for the reasons

given in the December 1982 final rule, see 47 FR 57211. it vlould be virtually

6 Indeed. that part of the ORNL Ivlodel most

critidzed in the April 1982 proposal, the market

penetration algorithm. was unchanged from the June

1980 proposal. The market penetration algorithm

V~ias not criticized by commenters to the June 1980

proposal.

7 Depend'ing on the issue, the explanations of

these change~ or the responses may appear either in

the DElcember 1982 final rule or in this rule.

impossible to annalyze possible

standards at levels where the data to

perform the analyses would be nonexistent or largely speculative. Because

the Act requires that potential standards

be analyzed both as to the likely energy

savings attributable to them as well as to

their economic justification, the

impossibility of meaningful analysis

effectively bars the consideration of

standards at such levels. Second, the Act

specifically prohibits standards for a

product (or class of product) if there is

no applicable test procedure for which a

final rule is being considered currently

have applicable test procedures have

been validated only ,vith respect to

currently marketed products. Experience

cautions that advanced technologies for

appliance efficiency might vvell make

current test procedures inapplicable. 8

Consequently, it VJould be irnproper

under the Act to require a standard for

,vhich there was an applicable test "

procedure.

Where commenters specified

particular prototypes they believed

should be considered; DOE has

addressed these particular models in the

product-specific discussion.

The ACEEE, National Vvildlife

Federation, NRDC, ·the Galifornia Energy

Commission and others gave examples

of appliances now available in the

marketplace that reportedly are

substantially more efficient than the

maximum lev:e1s considered by DOE.

The appliance designs mentioned

included condensing furnaces, heat

pump water heaters, and advanced

designs of refrigerators and refrigeratorfreezers.

A..8 a general matter, 9 the April 198.2

proposal considered a standard level for

each product at an efficiency level equal

to the maximum efficiencv of the

product in the domestic ~arket as of the

comments on the" June 1980 proposal.

That is, the original engineering analysis

prepared for the June 1980 proposal \vas

updated and revised in light of

comments on that proposal. Creating

"cost books" (breakdo...vns of the costs

of a given design option into its labor,

purchased parts, materials, and

investment components, which then can

be used to evaluate fully potential

standards levels) is a cOlnplex and

involved affair. By February 1,9B1 a new

"cost book" had been cOlnpleted lrvith

respect to the eight products. This was

the last "cost book" prepared before the'

6 Fo:' example, DOE has had to grant test

procedure waivers for certain condensing furnaces.

9 Where there are specific problems involved in

assessing particular design options now in the

marketplace as potential standard levels, these are

addressed in the product specifiG discussion.

April 1982 proposal, which was

expected to be issued much earlier.

After the April 1982 proposal, it would

not have been possIble to assess new

models in the market for potential

standard levels, change the "cost book,"

and then run all the computer models

~lith this new data within a reasonable

time period, and certainly not within the

periods that were required by courtapproved settlements with theNRDC

and Consumers Union. Moreover, had

DOE taken this additional time to

change the "cost books" with all the

delay that would have entailed, by the

time of the final rule there would

undoubtedly be still newer, more

efficient products available in the

market.

This reflects a general problem VJith a

rulemaking that assesses the effects of

potential standards, when over the time

'of the rulemaking the technology and

marketed products develop and

progress. DOE has continuously

attempted to use the most recent,

reliable data, where to do so \vould not

inordinately delay the rulemaking. 10

With respect to the potential standard

levels, to have adjusted the "cost books"

in light of the most recent products in

the marketplace and then to have

conducted the analyses based upon

these new "cost books" would have

substantially delayed this rulernaking. l1

Congress, in establishing the appliance

program, a.nticipated this possibility and

directed the Department to reevaluate

standards (including a no-standard

standard) \"lithin five years and from

time-to:-time thereafter. See Section

325{h)(1). Therefore, efficiencies of

products that have entered the market

after 1980 would be considered as

potential standards in that reevaluation.

The final comment relating to

maximum technologically feasible

efficiency levels urged DOE to consider

features currently available from fore~gn

products. Consumers Union and NRDC

argued that these products can be

imported, obtained under license, and

incorporated into domestic appliances

by the effective date of standards.

DOE's analysis considered only those

technologies available in the domestic

market because the Department did not

have detailed data for foreign designs

10 For example. these new products 'were included

as additional points in revising and improving the

cost-~fficiencycurves in the ORNL ~Iodel. becausf!

these inclusions ,vere simple to accomplish and

would not delay the rulemaking.

11 Moreover, as indicated in the product-specific

discussion. the efficiencies of some of these most

recent products are not even appropriate as

standar'd levels.
 CAS-RM-78-110 COMMENT 10

Federal Register I Vol. 48, No. 169 I Tuesday, August 30, 1983 / Rules and Regulations . £ 39380

not incorporated in domestic appliances

and, therefore, could not analyze

properly the impacts of standards based

on foreign designs. Although s0Il:le

commenters criticized DOE for not

analyzing the impacts of standards using

these technologies, DOE received little

information on these designs. An

additional problem with assessing

foreign products was evident from the

comments-disagreement and

uncertainty as to the facts concerning

the product. For example, NRDC and

Whirlpool Corporation disagreed

fundamentally over the capabilities of a

particular Japanese refrigerator. .

c. Energy savings

1. Determination ofEnergy Savings.

The determination of the likely energy

saviIlgs attributable to particular,

possible appliance efficiency standards

is critical in determining whether a

standard would result in a significant

conservation of energy or whether a

standard is economically justified.12

Thus, whether a rule were to prescribe a

standard or a no-standard standard,

such a determination is a necessary

element. Th..roughout this rulemaking

proceeding DOE has utilized the ORNL

~Iodel to form the basis for this

determination. In general, the ORNL ~fodel projects residential energy use by

a product with and without standards

over a given period. By comparing the

energy used wiL~out a standard during

the period to the energy used with a

particular standard during the same

,period, DOE is able to project the

amount of energy saved during that

period which is attributable to the

standard. The energy saved is expressed

in Quads (quadrillion BTUs). With

respect to electricity, the savings are

Quads of source or primary energy; that

is, the energy that is necessary to

generate and transmit electricity. The

Ofu~ Model is fully explaned in EcP.JJ,

at Appendix E. . This Model was originally developed

prior to this rulemaking and the

appliance efficiency program, but the

f,,'lodel has "been subject to continuous

refinement and improvement, much of it

as a result of this rulemaking. As a

result of L.'1.e June 1980 proposal, a

number of changes were made to the

!\·1odel in light of the comments, see .EcAD, 29-34. Similarly, as a result of the

April 1982 proposal, many comments on

the Model were received, and a number

of changes subsequently made. Several

of these comments and resulting

12 Under Section 325(d), DOE is required to weigh

various factors to determine whether a standard is

economically justified. One of those factors is the

projected energy savings attributable to the

standard.

changes were described in the

December 1982 final rule, see 47 FR

57201-57202. 13 All changes to the ORNL

Model·since the April 1982 proposal are

described in the Supplement to Li.e

Economic Analysis Document and

Engine~ringAnalysis Document

(hereafter "Supplement"), issued with

today's rule.

As indicated in the December 1982

final rule, the issue with respect to the

ORNL l-Aodel that received the greatest

attention \vas the Model's treatment of

the relationship between enerw.f prices

and the market's responsiveness in

producing and selling more energy

efficient products. The Model recognizes

that the ,existing marketplace is not

perfect; that is, all manufacturers do not

make and all consumers do not

purchase the type of equipment that

viould always be a consumer's most

energy efficient choice from a life cycle

cost standpoint alone. The Model

calculates the difference between the

optimal and the projected average life

cycle costs of equipment in a base year

from actual price and sales information

of equipment in that year and projected

energy prices. The difference between

the optimal arid projected life cycle

costs is defined as the market

distortion. 14 In years after the base

year, the Model projects the level of

market distortion based on the initial

level as modified by the market

penetration algorithm (EcAD, at 403).

The principal issue raised by

COffilnenters objecting to the ORNL

13 In the December 1982 final rule, DOE'concurred

in a comment of the General Accounting Office in

its report "Appliance Efficiency Standards: Issues

Needing Resolution by DOE" (hereafter "GAO

Report") that there was an inconsistency in the

ORNL ~lodel's treatment of the base and standards

cases. See 47 FR 57202.~At the time of that final rule

the computer coding had not been completed to

eliminate that inconsistency. Id. The Model's

calculations that form the basis for this rule reflect

the changes made to eliminate that inconsistency.

14 In the April 1932 proposal, DOE referred to the

implicit discount rate rather than the market

distortion to describe the difference between t'te

"perfect" and the existing market. In the Economic

Analysis Document, DOE also used the term

implicit discount rate for this purpose, (EcAD at

144-145), but the Economic ".nalysis Document, in

its explanation of how the Model operates, made

clear that it was the difference between the optima.l

and average life cycle cost (the distortion factor),

not any implicit discount rate, that actually was

used in the Model (Ec..W at 403-405). In the

December 1982 final rule, DOE clarified that implicit

discount rates are neither an input to nor a formula

in the ORNL Model. That is, projected energy

savings are not affected by changes in the implicit

discount rates. Rather the implicit discount rate'is

an output that is derived by the Model, and in the

1982 proposal was used as a shorthand method for

expressing the market distortion that does in fact

drive parts of the Model. See 47 FR 57200 n.5. For

reasons explained infra, DOE now believes it is

more accurate to .refer directly to the market

distortion rather than to implicit discount rates.

Model is the manner in which the

algorithm pr9j~cts market distortion in

future years.

In general terms the algorit.lnn has the

effect of diminishing the distortion .

between the optimal and, the average

life costs of equipment beLllg purchased

as a function of rising energy prices. ,In·

other words, as the price of fuel for an '

appliance rises, the market in that

appliance will become more "rational,"

i.e., the efficiency of equipm'ent being

purchased will be closer to the optimal ,

efficiency (from a life cycle cost

perspective) than it was when the fuel,

price was lower. Under the Model's

algorithm, however, distortion always

remains. \Vhile higher fuel prices reduce

distortion over time, they can never,

eliminate it altogether.

As an initial matter, several objectors

took exception even to L"le general

concept that the market responds to

higher fuel prices with more efficient

equipment. For example, the f\mnC

maintains that "the evidence that higher

price induces consumers to choose

higher efficiency is nonexistent: all the

evidence says that consumers are

almost totally tmresponsive to price.It

(NRDC, No. 2121, at 24).15 While this

objection is broader that one merely

directed at the algorithm, were this'

objection valid it would invalidate the

algorithm.

1'0 the contrary, ho\vever, DOE finds

that there is substantial evidence that as

fuel prices rise the market responds in

the manufacture and sale of more fuel

efficient equipment. For example, even "

the National Academy of Sciences

(NAS) study cited to DOE by the NRDC

states "there is ample evidence, that

-energy conSlL111ers respond to changes in

price ..." 16 See also Beck, Doctors,

and Hammond, Individual Energy

Conservation Behaviors 1-25 (1980).

Most objectors conceded that there is a

market response, but argued that the

market was not perfect or did not

respond adequately. See, e.g., New York

State Energy Office, 5-18/3, at 7;

Environmental Policy Center, 5-19/13, at

3-4; New York State' Energy Office. No.

2180, at 3. lvloreover, as even many

objectors noted, appliances overseas,

where energy prices are higher and

there are no governmental standards.

tend to be more efficient than American

IS Comments on the rulemaking were given

docket numbers. Citations to comments provide

those docket numbers, unless the comment was

submitted as part of an oral presentation, in which

case the citation is to the date and numerical order

of the presentation, e.g., 5-13/3. '

16 Behavioral and Social Aspects ofEnergy

Consumption and Production: Preliminary Report.'

National Academy Press, at 7 (1982) (hereafter

"NAS Study"). '
 CAS-RM-78-110 COMMENT 10

Federal Register I Vol. 48, No. 169 I Tuesday, August 30, 1983 I Rules. and Regulations && s . 2&L;& ·#!WYfZ44J&Et:·SCd ..wza:;:;;:;;aae 3CJ .:;U;:J.&A __

39381

, appliances. Survey data cited to DOE by

commenters also indicated that

consumer response to higher fuel prices

would be to purchase more efficient

equipment. Manufacturers supporting

the rule stated their belief, based upon

their experience in the field, that the

market did respond to higher energy

prices in higher efficiency equipment.

The fact that there'is wide-scale

advertising on the basis of efficiency,

even at the wholesale level, is evidence

that manufacturers and retailers act

upon that belief. Some, including trade

8ssociations, also found support for this

conclusion in the generally increased

efficiency of appliances in the past ten

years, a period in which energy prices

have risen. '

The objectors who denied the

existence of any evidence of a relation

between fuel prices and appliance

efficiencies instead suggested that the

increase in appliance efficiencies during

,the period 1972-1981 was caused by

factors other than fuel price increases.

For example, the NRDC acknovvledged

that H[t]he data ... clearly show that

appliance efficiences have increased

noticeable over the period 1972-1981"

(NRDC, No. 2176, at 6-7), and that

increased energy prices are one of the

important chang'es that has occurred

(id.), but NRDC suggests that State

efficiency standards, ,the threat of '

Federal standards, and increases in

efficiency as 8 by-product of other

design objectiv'es, not increased fuel

prices, are the more likely .explanation

fpr these increased appliance .

efficiencies. DOE has considered these

suggestions but has conc,luded that the

evidence does not support a

determination that these other factors,

as opposed to increased fuel prices, are

responsible for increased appliance

efficiencies.

First, no commenter has suggested

that an increase in efficiency in any

product subject to today's rule is the 'byproduct of other design objectives.

Second, no commenters presented any

evidence that the possible imposition of

Federal standards had resulted in

increased appliance efficiencies that

would not have occurred in the absence

of such possible imposition.l 7 Moreover,

increases in efficiency in the 1972-1981

period have occurred with respect to

appliances for which no proposed

I T While some manufacturers acknowledged that

t.he proposed standards had affected them in the

choice of a specific level of increased efficiency,

they also indicated their belief that market

pressures were demanding more efficient

equipment. See, e.g.. Climate Control, 5-20/5. at 2-3,

Thus. these statements do not establish that absent

proposed standards the observed efficiency

increo..8ses would not have occurred or been as great.

Federal standard has ever been

published.

\'V'ith respect to the suggestion that

State standards are responsible for

increases in appliance efficiencies~ the

NRDC, for example, attempted to

demonstrate that the manner in which

appliance efficiencies have increased is

more indicative of regu~ation-induced

changes than changes induced by fuelprice effects (NRDC, No. 2121, at 13-15;

NRDC, No. 2176, at 10-13). With respect

to refrigerators, NRDC submitted curves

representing the frequency of

distribution by efficiency for two classes

of refrigerator-freezer before and after

imposition of the California standard.

See NRDC, No. 2121, at Appendix A.

NRDC interprets these curves as

indicating that the increase in average

efficiency is due solely to elimination of

models that are prohibited by the

standard. DOE, however, believes these

curves indeed are evidence of a, price

rather than regulation effect. For.

example, in the top-freezer, auto-defrost

class (by far the most popular class)

between 1975 and 1981 the entire curve

shifts to the left, and the largest

increases in relative frequency are at

levels of efficiency in excess of that

required by the California standard.

With respect to the other class, the

efficiency of the most efficient model

did not incre,as~ in the time period.

Ho\vever, the number of more efficient

models increased substantially pri'or to

the imposition of the 1979 California

standards, and the trend continued after

imposition of the standards, with a

greatly increased number of models at

efficiency levels in excess of that

required by the standards. Is (increased

efficiency) does not indicate that fuel

price fa~tors are not at work or that the

increased efficiency is due to regulation.

The NRDC similarly clainls that the

pattern of efficiency improvements in '

room air conditioners also suggests that

the lmprovements were induced by

regulations rather than e:ice because

the changes in efficiency allegedly occur

in "quantum leaps" rather than at the

same pace as increases in fuel prices.

DOE, however, has never asserted that

the relationship, between fuel prices and

equipment efficiencies is perfect. Nor

does the ORNLModel assume a perfect

relationship. Obviously, the real world

marketplace is subject to fits and starts,

18 notes, moreover. that both curves have

points indicating the "best Japanese modal" as

exceeding the U.S. models in efficiency. Inasmuch

88 Japan does not have mandatory minimum

efficiency standards for refrigerators. but does have

higher electricity prices than the U.S. and an

aggressive labeling program. these points on the

curves certainly do not support the absence of a fuel

price/appliance efficiency relationship.

such as, the development of new

technology for increased effici,ency or,

sometimes more importantly, a low-cost

manner of incorporating new

technology. Moreover, DOE does not

concur that data on room airconditioners indicate Uquanturn leaps"

of efficiency improvements in individual

years, so as to be considered

inconsistent with fuel price effects. See,

e.g., Association of Home Appliance

Manufacturers (AHAM), No. 2105, at 4.

In sum, the evidence and arguments of

objectorsis insufficient to support the

conclusion that fuel prices have no

impact on appliance efficiencies'. 19 This

is not to say that State standards (or

even the threat of Federal standards)

have had no effect on appliance

efficiencies. Rather, the weight of the

evidence cle4;irly supports the conclusion

that mark~t factors are responsible for

increased efficiencies. 20

Contrary to the NRDC's allegation.

however. whatever contribution may be

attributable to, State standards (or the

threat of Federal standards) need not be

somehow deducted from the ORNL

Model's base case. See NRDC, No, 2121.

at 23-24.26. First, the NRDC,8ssumes

that all State standards will in fact be

eliminated. As indicated in the

December 1982 final rule, however, DOE

has reviewed existiIlgState standards

and fo~d that they would ,most likely

be granted an exemption from

preemption. Moreover, States that feel

that ,standards h~ve an impact seem

likely to seek exemptions. Second, the

promulgation of this rule does not

eliminate the threat of Federal

standards. Under the Act, DOE must

leevaluate a st~ndard (including a 'nostandard standard) within five years.

Third, as even NRDC concedes, fuel

price rises have indirect as well as

direct effects, and the indirect effects

include State standards and the threat

of Federal standards. (NRDC, No. 2121,

at 24)., Moreover, U[t]he 'elasticities'

recorded in the Oak Ridge model in fact

reflect a number of indirect responses to

price." (Id.) Indeed, the ORNL Model, by

notdistinguishing between direct and

ind~rect effects, is intended to reflect all

19 ~xtensiv,e responses to certain of the other

argumen~8 raised by objectors are not warranted.

For example, the NRDC asserted there was no

relationship in the market between the price of an

appli~nce and its efficiency. As alleged evidence of ,

this, NRDC enclo8~d an attachment listing various

appliance models, their initial cost, and their fuel

cost. DOE has reviewed this infonnation, but the

information is insufficient to determine the

comparal;>ilityof features or amenities associated

w'ith these models. so it is impossible to determine

whether the infonnation stJPports NRDC's point.

Consistent improvements in efficiency for

appliances not eveZUJlbject to any State standards

is nlerely orie indication.
 CAS-RM-78-110 COMMENT 10

Vol. 48,. No. 169

21 Several commenters who objected to the

algoritt.un suggested that builders and landlords

would always purchase the least expensive and

hence least efficient appliances. The record does

not support auch a conclusion. For example, DOE

received comments from some landlords that

because they paid the fuel bills, the la.ndlords, would

pay an increased price for the more efficient

equipment. See, e.g., the Robert A. IvlcNeill Corp.,

No. 2183. Moreover, it is not uncommon for

landlords to pay fuel bins. GAMA submitted data

dEa'11onstrating that landlords paid gas costs in 37

percent of the cases, oit coal and wood costs in 70

. percent of the cases, and electricit'i costs in. 21

percent of the cases. See Gas Appliance

Manufacturers Association (GMfA), No. 2177, at 2.

Wit.l) respect to builders, information submitted L'1

the rulemaking indicates that many builders are

incorporating high efficiency HVAC equipment in

the homes they build. See ProfessioneJ Builders,

October 1981 (survey sholftling 76 percent of builders

are installing high efficiency equipment). Perhaps

even more importantly, survey data submitted by

C~rrier indicated that builders were increasing the

efficiency of the equipment they were instaliing.

Carrier Corp., No. 2120. at 9-10{72 percent of

builders said that they plan to build homes in 1982

with more efficient equipment than those built in

1981, and over 25 percent said that all their 1982

homes wouid have more efficient equipment than

the 1981 homes). Because of some controversy over

revisions to the text of a National Association of

Home Builders·Research Foundation Survey, DOE

has not relied on the text accompanying that sUa."'Vey.

Nevertheless, the data, while indicating less than

total commitment to energy efficiency by builders,

also demonstrated that many builders and

.. subcontractors are concerned about the energy

consumption of the equipment L~ey install. Finally,

effects of rising energy prices on

applicance efficiencies. Consequently,

DOE does not agree that any effects of

State standards or the threat of Federal

standards must be quantified and

deducted from the observed increased

efficiencies before DOE can conclude

that increased appliance efficiencies do

result from increased fuel prices.

Concluding that Llte record amply

supports a finding that L.~creased

'- efficiencies of appliances result from

increased energy prices does not,

how~ver, exhaust the inquiry. As

indicated above, while many objectors

conceded that the market worked to one

degree or another, these objectors

argued that the ffi.arket was not perfect,

did not result in optimal efficiencies, or

did not adequately respond to increased

energy prices. See e.g., New York State

Energy Office, No. 2180, at 3. Several

descriptions were made of aspects of

market imperfection.

First, many appliances are purchased

by persons other than those who wHl

pay L;'e fuel bills, and therefore they will

not have a direct fL.,ancial incentive to

lovver the life cycle cost of an appliance

where to do so incurs a higher initial

purchase cost. Specific examples could

be builders of new housing and some

landlords. See, e.g., GAO!Ei\ID-82-78,

at 13. These types of persons are

generally referred to as Hthird-party

purchasers." 21

Rules and

25 The studv indicated that, while investment in

thermal integiity in electrically heated homes

sholoved little change in b:nplicH diaccunt rates over

L;,e period 19i3-1S79, L~e L."!lpncit dier;ount rates for

those investnl€nte in gas·heated homes declined 15

to 20 percent. Inasmuch as the real price of gas

increased aInlost five times as rapidly during the

period as that of electricity, and the initial implicit

discount rates for electricity were only a fraction of

the initial implicit discount rates for gas, such a

differential in changes in implicit discount rates

bet'Neen ga.s and electricity is explainable. While

DOE tentatively characterized this reduction in

implicit discount ratee as relatively small in the

Apri11982 proposal, upon further analysis DOE

believes such a characterization is inapt. First,

Thermal integrity improvements are almost entirely

made by ..third part"j" builders of new nousmg, and

therefore market imperfections in this type of

investment would tend to be greater than for

products directly purchased by the ultimate

consumer. Second, there is no labeling program for

such improvements. Third, such reductions in

discount rates are not inconsistent with those

projected for some applicances by the ORNL Model

over the same period of time. More importantiy,

upon reconsideration of the tentative conclusion to

be derived form this study, expressed in the last

sentence of pages 145 of the Ecft.D. DOE has

determined that the results of the study support the

concept of the reduction of nlarket distortion as a

result of rising energy prices. Moreover, even the

and the market penetration algorithm

ignore these possible market failures.

For example, several commenters seem

to Euggest that the Model ignores L'i.e

effect of frJrd-party purchasers. See,

e.g., Consumers Union, No. 2085; GAO

Report, at 12-13. This, hovJ"ever is not.

so. As indicated above, the lvlodel

derives the initial distortion factor (the

difference bet~leen the actual and

optimum average life cycle cost in the

base year) on the basis of actual cost and

shipments data. This distortion factor

necessarily gives effect to all

market L.11lperfections in L1.e base year,

,although without quanti~1ng the

separate impact of each. Moreover, the

way the algorithm is structured, the

distortion factor is never eliminated; it

can orJy be reduced. Thus, nothing in

the Model or the algorithm denies the

existence or continuation or market

imperfections. Rather, the algorithm

merely represents a judgment that

market iInperfections will diminish as

fuel prices rise,

Several commenters who objected to

the ORNL ~:lodel contested that as fuel

prices rise market distortion diminishes.

As DOE noted in the April 1982

proposal, few studies have been made of

changes over time of market di.stortion

(or of implicit discount rates) or the

relationship between market distortion

and changes in fuel price. The only

study cited to DOE, a study DOE itself

identified in the April 1982 proposal,

while certairJv not conclusive, does

suggest that high~r fuel prices may lead

to less market distortion. See EcAD, at

145.25 .

the number of advertisements for housing which

includes claims as to the energy efficiency of the

house indicates builder concern with efficiency, if

only because of perception of purchasers' concern.

22 The availability and credibility of information

regarding the efficiency of appliances and the

imnact of such efficiencies on fuel costs are

ob~iously very important to improving the

rationality of the appiiance marketplace. See

generally NAS Study. No one mechanism, such as

government required labeling, is determinative, but

apparently multiple, reinforcing sources of

information, over time, can have a synergistic effect.

23The NRDC cited the NAS Study as support of

NRDe's criticism of the algorithm and 8S suppport

for NRDC's criticism of the use of any econometric

model for projecting energy savings. See NRDC, No.

2121, at 17.

24It should be noted that these variables can have

the effect of having consumers value energy

efficiency or conservation more lzighly than would

be indicated by a life cycle cost analysis. That is,

there can be market "imperfections" that tend to

overvalue energy efficiency. The NAS Study, fer

example, describes the growing trend toward

"voluntary simplicity." See NAS Study, at 27-29.

Second, tt~e ability of consumers to

make life cycle cost determinations

depends on t.~eir knowledge and the

availability of adequate LTJiormation.

Until the advent of the appliance

labeling program, it would have been

exceptionally difficult for consumers to

determine tile relative life cycle costs of

competing appliances. Even now there

was substantial evidence in the record

L1.at the labeling program for furnaces

has serious probiems. Moreover, until

fairly recently the energy efficiency of

appliance was not widely advertised, so

consumers has little ability in ma.ny

cases to distinguish higher efficiency

from lower efficiency appliance,22

Third, replacement of many

appliances may occur when the existing

unit fails, and the consumer may be

primarily concerned about quick

replacelnent rather than life cycle cost.

Fourth, as noted by the NAS study

provided by the NRDC, consumer

decisionmaking involves H a range of

variables that may be considered

'internal' to the consumer including

attitudes, beliefs, uncertaL.'11y about

personal futures, mode of information

processing, interpersonal influences, and

personal norms.". (NAS Study, at 6).23

These variables would affect the extent

to '~vhich the "market" operates to

minimize life cycle costS. 24

DOE recognizes, that, for all its

efficiencies, Ll.e marketplace does not

achieve absolute perfection il'1

minimizing life cycle costs. In the April

1982 proposal DOE ack..,.,owledged the

existence of market failures in the

appliance industry and identified

several of the possible causes that Viere

also mentioned by objectors. See 47 FR

14428 (PApril 2\ 1982). The COIP..ments by

objectGrs~ h0 7vvever, seem to reflect the

erroneous belief that the O&'I\J'L Model

39382 Federal
 CAS-RM-78-110 COMMENT 10

Federal Register I Vol. 48, No. 169 I Tuesday, August 30, 1983 I Rules and Regulations 39383

While this study \-vas the only

empirical study of the effects of

increased fuel prices on market

distortion, there is a theoretical basis for

the conclusion that increased fuel prices

will result in reduced market distortion.

That is, if one considers the nature of

several of the causes of market

imperfection, it appears logical that

increased fuel prices will reduce at least

to some degree these imperfections. The

NAS Study, for example, in discussing

the lack of consumer information and

awareness as an impediment to efficient

working of the marketplace, states:

"This sort of energy unawareness can

be reversed if price increases or other

stimuli'are strong enough to make

energy salient." (NAS Study, at 30). And,

U[e]nergy price increases will make us

more aware of energy flows ..." (Id., at

32). See also Individual Energy

Conservation Behaviors, Opt cit., at 180-

191. ~1oreover, just as energy price

increases can result in better

information and awareness of the

energy costs of appliances, so also can

such awareness become.concern, such

that third party purchasers would have

to consider the salability or rentability

of their housing units if they are not

energy efficient. The existence of this

theoretical and empirical evidence' of a

reduction in market distortion. however,

is not evidence of the' elimination of '

market distortion, nor is it necessarily

evidence for a particularrate ofdecline

of market distortion. 2s '

The market penetration algorith is a

formula for a particularrate ofdecline

of market distortion as a function of

increased fuel prices. In light of a

number of COII"J.ffients that there was no

empirical support fOf the particular

algorithm, DOE undertook to try to test

the algorithm by applying it to products

in past periods and seeing if it

accurately projected the present. As

indicated earlier, however, the way the

algorithm works is t9 take a base year's

actual and cptimum average life cycle

costs for an appliance from actual data

on equipment prices, efficiencies, and

shipments. Unfortunately DOE does not

authors of the study used it to support further work

to improve market forces and reduce market

imperfections, not to support mandatory efficiency

standards.

28 Some commenters focussed on Table 2-2 in the

EcAd to argue that. despite rising fuel prices, four of

the six products subject to today's rule showed

decline in efficiency between 1978, and 1980 and

consequently no decrease in market distortion. As

indicated in the EeAD's Table 2-2., however.. the

1980 values were estimates based on the

engineering analysis. In the Supplement. Table 2-2

has been updated with the most recent data. and

estimates have been eliminated. Thus, it shows

actual measured increases in efficiency. No product

declined in efficiency between the years for which

data was available.

ha"(e sufficient data for any year prior to

1978 to enable it to test the algorithm

with precision. That is, DOE had to

estimate some of the data inputs for

earlier years, and it is not clear to what

extent these estimations could affect the

validity of the test. In addition, the

scientists who developed the test

designed it to measure changes in

implicit discount rates, rather than

changes in market distortion. 2 T In the

course of making initial test runs,

however, DOE discovered that under'

certain circumstances relatively minor

char-'8es in market distortion could

result in drastic changes to the implicit

discount rate. The clear implication of

this was that implicit discount r~tes

were not a good shorthand for market

distortion, and that the test of the

algorithm, if run in this manner, would

be virtually useless because major

deviations in the projected implicit

discount rates from "actual" rates would

not establish that the algorithm was

inaccurate.28 Finally, in the course of

the initial test runs and a general review

of the ORNL Model,29 it was determined

that a problem existed ,in the aIDa

Model's life cycle cost-effici@cy curve,

which has the effect of tending to

exaggerate the market distortion in

future years. That is, separate from the

disputed formula that reduces market

distortion as a fun'ctlon of rising energy

prices, the algorithIn has a bias toward a

larger than appropriate market

distortion. 30

In light of these developments, the

statutory requirement for a fmal rule by

January 1981, and the lawsuit described

above to compel is~uance of standards

by January 29,1983, DOE determined

that further adjustments of the ORNL

27 As indicated above, DOE had used implicit

discount rates as a shorthand for measurements of

market distortion, even though implicit discount

rates were not used in the algorithm or Model.

18 In Addition to this problem with the use of

implicit discount rates as a shorthand for market

distortion, the use of the term apparently confused

people. Despite the claar statement in the EcAD' that

the term was not used to refer to the decision

criteria of individual consumers, but to characterize

the behavior of the entire market (EcAd. at 144),

persona misunderstood the distinction and

consequently made some comments that were non.. '

responsive. See, e.g.• NRDC. No. 2121.. at 10-11.

28 In light of the many negative comments on the

O&.1\fL Model in the rulemaking proCeeding DOE

assembled a task force of three persons who had

never been associated or involved with the

appliance ruJemaking but who were at least aware,

of the ORNL Model. The purpose was to have the

~Iodel evaluated by technical experts who were

disinterested in the rule and the Model. None of the

persons was employed under the Assistant

Secretary for Conservation and Renewable Energy.

and only one was an employee of DOE.

ao The experts who discovered this problem

estimated that perhaps eighteen months of analysis

might be required to quantify the effects of this

problem.

Model for the purposes of this

rulemakingwould not be appropriate.

That is, the time that would be required

for the analyses, the doubtful usefulness

of the conchlsfons that would be

reached, and the limited effect of the

market penetration algorithIn itself SI all

counselled against delaying final rules

in this proceeding pending conclusion of

further analyses of the algorithm or the

Model.

Accordingly, it remains true that there

is no specific empirical,or theoretical

study to support the particular rate of

decline of market distortion as a

function of energy prices reflected in the

algorithm. On the other hand, there, is no

such study disproving the algorithm. s2

Some, including the GAO Report,

made the claim that a small increase in

the efficiency of some appliances since

1972 despite large energy price increases

is inconsistent with the algorithm. These

claims, however, misconstrue the

effect of the algorithm. That is, large

energy price increases do not

necessarily mean large increases in

efficiency of appliances in the Model.

The relative speed of improvement in

efficiency for a product would depend

on its initial market distortion. Indeed.

in the EcAD, it was apparent that the

Model projected efficiency

improvements occurring at greatly

different rates among appliances. See,

e.g., Table 3-12, EcAD. Thus, it is simply

incorrect to expect that a given increase

in energy prices results in a similar

increase in appliance efficiencies.

Several commenters argued that the

algorithm was inaccurate because

linearly projecting historical efficiency

improvements into the future provided

different results from the algorithm.

Such an argument, however, assumes

that simply projecting past efficiency

improvements into the future is a valid

methodology. There is, however, no

evidence in the record to support such a

3 1 In the product-specific discussion the limited

effect of substituting either the rate of historical

improvements or a constant market distortion is

described.

a2 As indicated in the April 1982 proposal, the one

study acknowledged by DOE and cited by commenters involved thermal integrity

improvements which involve circumstances ,

sufficiently dissimilar from the appliance context to

render that study's specific figures inconclusive in

the appliance context. See also supra.

NRDC noted a paper by David Meyer that

criticized the Energy Productivity Center's estimates

of future electricity demand as being '·heavily

dependent on over-optimistic assumptions about the

future pace of investment in energy efficiency." The

ORNL Model's assumptions, however, are much less

optimistic than those criticized and indeed produce

what Meyer termed "8 more realistic portrayal."

NRDC, No. 2121. at 20.
 CAS-RM-78-110 COMMENT 10

39384 Federal Register / Vol. 48, No. 169 / Tuesday, August 30, 1983 / Rules and Regulations

conclusion. 33 Rather, there is ample

evidence to the contrary. For example,

as even NRDC notes, over the period

1948-1975 refrigerator efficiencies

declined,34 NRDC, No. 2121, at 17, but

thereafter they improved significantly.

Moreover, as the NAS Study stated

succinctly, Hlf there is one certainty

about the u.s. energy system over the

past 10 years, it is that the recent past

has not been a valid guide to the

immediate future." NAS Study, at 32.

In light of all of the above, DOE has

determined to retain the market

penetration algorithm without changes.

This does not reflect an arbitrary

conviction by DOE that even absent

validation the algorithm must be

accurate. To the contrary, DOE is

continuing analyses and research into

the algorithm and the ORNL f\.10del

generally to validate or improve them

wherever possible. 35 Rather, retention

of the algorithm is based upon DOE's

conclusion that, given the current stateof-the-art, the algorithm is the best

measurement available of the particular

relationship between rising energy

prices and increased applianc~

efficiencies. Other methodologIes

suggested by commenters, such as the

rate of past historical improvements or

freezing the current market distortion,

not only are not superior to the

.. algorithm, but also on the basis of the

record are clearly worse. 36

33 NRDC states that "[o]ne assumption consistent

with the data is that appliance efficiencies will

generally continue to increase at the same rate that

they have increased historicaly, absent standards."

NRDC, No. 2121, at 16. At best, this is a tautologyif one assumes that the future will reproduce the

past, then data as to the past is consistent with the

assumption. At.the worst, it is simply incorrect. See

infra.

34 Over this period, it should be noted, real

electricity prices declined. The algorithm would

accordingly project lower efficiencies.

3:» Subsequent to the public comment period and

to DOE's anqlysis of the ORNL Model and the

algorithm described above, as an outgrowth DOE's

continuing efforts to improve the ORNL Model as

both a research and regulatory tool, a preliminary

report of an attempt to test the algorithm was

submitted to DOE by contract personnel. That

preliminary report has not been documented, 80

DOE does not believe that decisions should be

based upon it. Nevertheless, its preliminary,

undocumented results indicate that with respect to

.three of five appliances using electricity, the

algorithm's projection from a 1972 ba~e year of the

1980 market distortion (as measured In dollars

difference between the optimal and average life

cycle costs) was within $10 of t'1e "~ct?al" 1980

market distortion. Although the prelIminary report

only used electricity prices, it appears to indicate,

however, that market distortion increased for

furnaces and water heaters during the period 1972

to 1980, which would be inconsistent with the

algorithm's projections.

36 By using these two other methodol?gies as

sensitivity analyses in the product speCIfic

discussion, DOE does not intent to suggest that

there is any basis for using such methodologies in

place of the algorithm.

The ORNL Model with the algorithm

has been studied by independent

organizations separate from the

rulemaking and found to be a useful and

appropriate model for analyzing energy

policy choices in general and appliance

efficiency standards in particular. For

example, in April 1981, a draft report for

the Electric Power Research Institute by

the Energy Laboratory of the

Massachusetts Institute of Technology

concluded, "[t]he end use detail of the

model and its ability to capture the

dynamics of applicance acquisition

make it particularly suitable for

analy~ing the impacts of policies which

affect specific appliances. * * * The

ORNL model is well-suited for

forecasting the impacts of mandatory

standards." An Evaluation of the ORNL

Residential Energy Use Model, MIT

(April 1981), at 95,101. A report by the

Energy and Resources Group of the

IJniversity of California at Berkeley

compared the ORNL Model with the

California Energy Commission (CEC)

model. That report concluded that the

ORNL Model was not appropriate for

energy use forecasts at the level of a

utility company's service area, but that

it was appropriate to use the ORNL

Model "to estimate the comparative

impact of new policy initiatives on the

national level." An Assessment of

Residential Energy Consumption Data

and Their Use in Forecasting Models,

Volume I: Overview, Energy and

Resources Group, Berkeley, California

(September 1981), at ii-iv, 43-45. Indeed,

that report concluded that the ORNL

Model represented "the state-of-the-art

in demand forecasting of a mechanistic

nature." Id., at 18. And the report also

found that the CEC Model should not.be

used to estimate energy savings

resulting from imposition of appliance

standards. Id., at iii-iv. The Energy

~lodeling Forum in 1979 compared the

electric load forecasting of ten different

models. The ORNL Model was singled

out as the only model that separated the

effects that would occur normally in

response to higher prices, which the

report stated was necessary for an

accurate estimation of the effects of

standards. Electric Load Forecasting:

Probing the Issues with Models, Vol. I,

Energy Modeling Forum (April 1919), at

28-29. These reports all dealt with

earlier versions of the ORNL Model, and

some of the reports naturally contained

recommended improvements to the

Model, many of which have been made.

.The importance of these reports,

however, is that notwithstanding the

limitations of the Model it was

determined by independent scientists to

be an appropriate, and when compared

to other models the most appropriate, 

model for assessing the impacts of 

appliance efficiency standards.

It is appropriate to note again that the

algorithm was developed before and

without r~gard to the appliance

efficiency program, by scientists

attempting in good faith to model in the'

most accurate fashion changes in

residential energy use. The very

questions emphasized by commenters

critical of the April 1982 proposal were

in fact first raised by DOE as a result of

its own research and identified as

questions in the April 1982 proposal. The

existence of unresolved questions,

however, is not a ground for replacing

the algorithm, especially when the only

presently known possible replacements

have established deficiencies.3'7 As

indicated earlier, DOE has made

changes to the ORNL Model's

methodology and inputs where the

record supports changes. With respect

to changes to the algorithm, however,

DOE concludes that such record support

does not exist.

As the above discussion suggests;

DOE's review of the ORNL Model

generally, including the algorithm, is a

continuing affair, and is not dependent 

on the existence of a particular

rulemaking. Consequently, DOE is now

considering and continues to search for

possible improvements to the Model..If,

in the course of such on-going studies, it

is found tha.t improvements to the ORNL

Model or of any of the other models or

analyses are of a magnitude that might

affect the determinations made in

today's rule, DOE intends to begin a

new proceeding at that time without

waiting for the beginning of the

statutorily required five year review.

2. Significance ofSavings. As

indicated above, the Act prohibits DOE

from adopting an energy efficiency

standard for a product 'unless the

standard would result in a significant

conservation of energy. In the Apri11982

proposal, DOE noted that the Act did

not define the term "significant." Thus,

DOE indicated its view that Congress

used such a term with the intent that

DOE would, in the exercise of its

informed judgment, determine what

I? Not all of the questions, moreover, would have

the effect of diminishing the effects of the algorithm.

In the April 1982 proposal, for instance, DOE

indicated its belief that the algorithm might well

understate the speed at which efficiency

improvements might be made. 47 FR 14428. 

Moreover, the rulemaking record provided some

support for this belief. Nonetheless, DOE has

concluded, in agreement with objectors, that it

would be inappropriate to alter the algorithm in this

respect in the absence of data or validation to

support such a change.
 CAS-RM-78-110 COMMENT 10

Federal Register / Vol. 48, No. 169 I Tuesday, August 30, '1983 I Rules and Regulations 39385

level of savings would be significant and

, under what circumstances..

Accordingly, in ,that proposal DOE

proposed three different tests for

significance, anyone of which, if met by a potential standard, vvould justify a

finding by DOE that a significant

Con$ervation of energy was attributable

to the standard. In the December 1982

final rule, DOE treated at some length

the various comments on the three

proposed tests and concluded that with

certain changes the three tests were

appropriate. See 47 FR 57202-57209. As

indicated in the preamble to that rule,

the three tests to be utilized are:

(1) If the standard \vould result in the

saving of 10,000 bpd of oil or the saving

of 58153'0 mef per day of natural gas38

over the period of the average life of the

product in question beginning with the

year 1987; ,

(2) If the standard would result in the

saving of one percent of national '

electricity use over the period of the

average life- of the product in question

beginning with the year 1987;

(3) If the savings attributable to a

standard for a product were equal to

16.67 percent of the energy that \t'iould

be used by that product in the B:bseuce

of"a standard, measured over the one

year period fonowing the period of the

average life of the product purchased in

1986.

In the December 1982 final rule, DOE

indicated that it had not yet concluded

its consideration on the issue of

electricity peak load demand savings.. A

number of commenters on the April 1982

propo'salhad criticized DOE's electricity

savings significance test becaUSE it

allegedly ignore.d the effects of

standards on peak load savings.

Because the December 1982 final rule

did not deal with air conditioning

equipment, the products most cited to

DOE b\r commenters as those for which

peak l~ad analysis vvas most important,

and in light of the importance of peak

load savings, DOE deferred a decision

on this issue and stated that it was

continuing to study the issue toward the

end of perhaps adopting an additional ,

test of significance in tbJs rule. See 47

FR 57207-57208.

A number of methodologies can be

used to determine peak load savings

attributable to a standard in a particular

utility service area. See, e.g., New York

City Energy Office, No. 2141, at

Appendix C; ACEEE, No. 2173, at 3-4. 39

38 58,530 mcf of natural gas contain the. same

BTUs as 10,000 barrels of oil.

39 DOE is in the process of developing a computer

model that can be integrated with the ORNL Model

that simulates disaggregated hourly residential

electricity demand for electric utility service areas.

Each of these methodologies requires

data specific to the utility service area

as to peak and average loads (which is

generally available) and as to the

contribution of the particular product in

, queslion to those peak and average

loads (which is generally not available,

although it is available for some

utilities). The primary difficulty,

however, is in making determinations on

a national basis. 'First, it is simply not

possible, for data .and resource reasons,

to determine the effect of a standard for

a product on the peak load for each of

the utilities in the United States and

then simply add them. Second, it would

be inaccurate in this instance simply to

generalize to all utilities the impacts of a

standard on the peak loads of a small

number of particular utiIities.40 Third, it

is methodologically inaccurate to derive

national peak load savings by backing

out of aggregated national data

regarding peak loads the demand

reduction attributable to a standard for

a product. 41 The present inability to

determine even order-of-magnitude

national peak load savings attributable

to a standard for any product, especially

air conditioning equipment, makes

impossible a specific test of the

significance of energy savings based on

peak load savings.

d. Economic ]ustljication

As indicated above, Section 325(b) of

the Act prohibits a standard for a

product if DOE by rule determines that

the standard is not economically

justified. Thus, even if a standard would

40 As indicated in.the December 1982 final rule,

the nature of a utility's peak load is highly regional.

if not local. The New York City Energy Office. for

example~ stated that its demand curve was unusual.

No. 2141, at 6. ~Ioreover, whereas 19 percent of the

peak demand "'-Nas attributable to room air

conditioners, less than 2 percent was attributable to

central ,air conditioners. Id., at Appendix C.

41 This was essentially the methodology used by

ACEEE to estimate national impacts. The primary

problem with this methodology is that it assumes

that all reduction in demand is a reduction of peak

demand. There simply is no such coincidence. For

example, the overall savings in demand attributable

to a standard would not reduce the utility's peak

demand by that amount because not all units of the

product would be used at the peak load period. In

New York City, for example, the percentage of

conincident usage of air conditioning equipment at

summer peak is only 47 percent. New York Gity

Energy Office, No. 2141, at Appendix C. Other

electrical products are generally considered even

less coincident with the peak load. See ACEEE, No.

2173, at 4. Even more important with respect to air

conditioning equipment is the fact that any demand

reduction would have 110 impact on the peak

demand of the large number of utillties that are

winter peaking. Moreover, many utilities which are

summer peaking have summer peaks only slightly in

excess of their winter peaks, with the result that air

conditioner demand reduction might turn them into

winter peaking utilities rather than reducing their

overall peak by the amount of the summer peak

reduction.

result in a "significant" conservation of

energy, the standard would be

prohibited if it were not economically

justified. Section 325(dJ of the Act

addresses how DOE is to determine

economic justification. 42 It states that a

standard is,economically justified only if

the benefits of the standard outweigh its

burdens. L'i. weighing the benefits and

burdens, DOE is required to consider six

specified factors, as well as any other

factors DOE considers relevant. In the

April 1982 proposal, DOE indicated that,

in light of the Regulatory Flexihility Act,

it would consider as an additional,

relevant factor the impact of a standard

on small businesses. See 47 FR 14434-5.

DOE asked for comments on what other,

additional factors DOE should consider.

DOE did not receive any suggestions for

additional factors. Each factor is

separately discussed below.

Certain of these factors can be

quantified, albeit through projections

and computer models; others are not

quantifiable. Congress recogniz.ed this

and indicated that greater weight should ..

not be given to a factor because it was

quantifiable. See H.R. Rep. No. 95-1751,

95th Cong., zd. Sess. 116 (1978)..

1. Economic Impact on A1anufacturers

and Consumers (Section 325{d){l)). A.

Manufacturers. In the April 1982

proposal, in order to quantify a number

of impacts on manufacturersLDOE used

a computer model, the Financial Impacts

Model (FIM), to simulate the effects of

standards on different-sized firms in the

appliance industry. The Fli\1 is fully

explained in the EcAD. See especially

Appendix A. In general, the FIM

compared the projected financial

records of prototypical firms over a

twelve year period-1980 through 1991-

under a base case and two standards

cases (levels 2 and 3). The FIM then

provides four outputs: the increased risk

to a firm of not making a profit in the

maufacture and sale of a given product

subject to a given standard co~pared to

the base case, and the relative

profitability, debt/ equity and "quick"

ratios 43 of firms in the base case and

with standards. See EcAD, at § 4.5.

These impacts, as ~elevant, are

42 The NRDC suggested that because Section

325(d) by its terms only refers to Section 325(c), not

Section 325(b), DOE should not determine economic

justification under Section 325{d). As indicated in

the December 1982 final nlla, DOE believes the test

of economic justification in Section 325(d) is

appropriate for the determinations required by

Section 325(b). See 47 FR 57209 n.20.

43 The quick ratio is a measure of a firlil's ability

to withstand short-term downturns in business

activity. Also called the acid test ratio.. it is defined

as current assets. less inventorv. divided bv current

liabilities
 CAS-RM-78-110 COMMENT 10

39386 Federal Register I Vol. 48, No. 169 I Tuesday, August 30, 1983 I Rules and Regulations

described in the product-specific

discussion.

DOE also conducted for the April 1982

proposal a sensitivity analysis of the

risk analysis in the FIM to determine

how changing certain variables would

affect the output. As indicated in the

Apri11982 proposal, changing the level

of products shipped had a substantial

impact on the model's output of

increased risk. Where appropriate, these

impacts are shown in the productspecific discussion.

Manufacturers and their trade

associations were generally of the view

that the FIM understated the negative

impacts of standards on firms. Ivlost of

these comments, however, did not make

suggestions as to how to improve the

FIM. Perhaps most importantly, the

commenters supported DOE's tentative

conclusion in the p...pril 1982 proposal

that the FIM understated the negative

impacts on small businesses, see 47 FR

14435. This is discussed in more detail,

infra. , A few commenters suggested that the

FIM's methodology resulted in an

overstatement of the negative jm.pacts of

standards on firms. These commenters

noted that the FIM analysis assum.ed

that the entire investment necessary to

raise 1978 efficiencies to standards

levels was attributable to the standards,

whereas the ORNL Model projected that

absent standards efficiencies would

increase substantially from 1978 to 1987,

suggesting that at least some

investments to raise efficiencies were

not attributable to standards. See, e.g.,

GAO Report, at 14; ACEEE, 5-19/4, at

10.

This Ihnltation of the FIM, however,

had been fully recognized by DOE in the

April 1982 proposal. See 47 FR 14431

n.18. Consequently, in order to

determine only the impacts on firms

attributable to standards, DOE reduced

the Fltvl's projected impacts by a

percentage equal to the ORr'~L model's

projected increase in the efficiency of a

product between 1978 and 1987. See 47

FR 14437 n.31, 14439 n.38, 14443 n.49,

14446 n.59, 14451 0.71, 14454 n.76. t-Jo

commenter criticized this methodology

for adjusting the impacts projected by

the FIM.

For the rule today, DOE updated the

imputs to the FIM. See Supplement. In

addition,. DOE altered slightly the

methodology for adjusting the impacts of

the FIM. That is, as indicated in the

April 1982 proposal, to reduce the FIM

impacts by a percentage equal to the

percentage increase in efficiency of a

product between 1978 and 1987

presumes that investment occurs at the

same rate as increases in efficiency. In

fact, however, .initial increases in .

efficiency cost less than later increases

in efficiency. That is, the most costeffective investments in increased

efficiency are made first. Therefore,

DOE has altered its methodology to

account for this situation. The EnAD

provides a basis for constructing costefficiency curves that correlate

increases in efficiency to levels of

investment~ DOE has, accordingly,

determined the percentage of investment

that would be made between 1978 and

1987 in the base case and decreased the

impacts of the FIM by that percentage.

Because the limitation of the FIM relates

to its failure to incorporate investments

in more efficient products made in the

base case between 1978 and 1987, to

redu~e the impacts of the FIM by the

percentage of investments projected for

that period will better take account of

that limitation.

A few 'commenters suggested that the

negative impacts projected by the FIM

were insignificant. A number of

manufacturers, however, not only felt

that the negative impacts were

understated but that they were

significant, especially for small

businesses. The specific impacts

projected by the FIM for each product

are indicated in the product-specific

discussion, including DOE's conclusion

whether the impact is.meaningful. As a

general matter, however, there can be

little doubt that a negative impact on

manufacturers attributable to a standard

is, no matter how small, a burden to be

weighed in assessing the economic

justification of a possible standard. The

snlaller the negative impact, of course,

the smaller is the weight to be attributed

to it.

Finally, with respect to the FIM, some

comrnenters questioned how it was that

DOE projected very small energy

savings attributable to standards but

substantial negative impacts on

nlanufacturers. These commenters

suggested such conclusions were

contradictory. See, e.g., Minnesota

Department of Energy, No. 2133, at 3.

There is no such contradiction, because

a small energy savings attributable to

standards does not necessarily mean

that the investment and other

manufacturing resources to obtain that

savings are small. Moreover, the FL\1's

prototypical firms were based on the

financial and operating characteristics

of firms making the particular appliance,

and some sectors of the industry may be

highly susceptible to negative impacts

because of their particular market

peculiarities. No data or analysis was

provided by these c.ommenters to

suggest a different way of measuring the

impacts.

In the April 1982 proposal, DOE noted

that in addition to the quantified

impacts on manufactu~ersmeasured by

the FIM there w~re certain unquantified

impacts. DOE specifically mentioned

that to the extent that expenditures by

manufacturers on energy efficiency

improvements to appliances are dictated

by standards rather than economics,

more appropriate investments may be

forgone. DOE indicated that th~

foregone investments could include

investments in increased productivity,

increased energy efficiency in the

manufacturing sector, or new utility or

performance features. See 47 FR 14431-

32. Manufacturers generally supported

this conclusion. Cornmenters who

objected to the conclusion generally did

not offer arguments to the contrary, but

rather suggested that DOE~had no data

to support such a conclusion.

,DOE does not believe that data is

necessary to support a conclusion that is

" othervvise supported by generally

accepted economic theory. Moreover,

Congress has indicated that merely

because a factor cannot be quantified

should not affect its consideration in the

weighing of burdens and benefits of a

possible standard. However, as was

also indicated in the April 1982, .

proposal, see 47 FR 14432, 14435, this

particular type of burden is essentially

inherent in any appliance efficiency

standard and might be characterized as

a generic burden of a government

standard. As such, in the absence of

evidence of a particularized nega tive

impact, this burden alone clearly cannot

be enough to outweigh all the potential

benefits of a standard, because it would

make the remaining economic

justification factors superfluous. Thus,

while DOE does consider this

unquantified burden in weighing the

burdens and benefits of standards, DOE

does not assign it great weight in the

absence of evidence of particularized

negative impact with respect to a given

product.

In addition to this unquantified

burden on manufacturers, several

commenters suggested others. Of

primary concern was the effect of

standards on U.S. exports of appliances.

Manufacturers and trade groups

generally expressed the view that the

current U.S. 20 percent share of the

world appliance market would be

reduced because, as a result of

standards, the U.S. products would be

more expensive. DOE has considered

this comment but does not believe there

is sufficient evidence to conclude that,

overall, standards would have a

negative effect on u.s. exports of

appliances. First, the Act expressly
 CAS-RM-78-110 COMMENT 10

Federal Vol. 48, No. 169 Rules and 39387

exempts exports from any efficiency

standard. Section 330. Second, while it

might raise export unit costs tq create

new. separate domestic and exports

lines, there is insufficient evidence why

new separate lines would have to, be

created. That is, production lines

currently producing any noncomplying

models could become the exnort lines.

Third. it has not been established that

more expensive but more efficient U.S.

appliances woul~ not compete as well

abroad as less expensi~e and less

efficient U.S. appliances.

Commenters v.;ho opposed the April

1982 proposal raised some nonquantifiable impacts on manufacturers

that they suggested either mitigated the

burden of standards on manufacturers

or might make a standard more

beneficial for manufacturers than a nostandard determination. One of these

impacts was the mandatory elimination

of various product lines (because they

would not meet the standard's

requirement) which# supposedly would

reduce costs to manufacture,fs. See, e.g..

Carrier Corp~, 5-18/7, at 7.

While it might be true for large

manufacturers that compete across the

entire product spectrum that there

would be costsavings in reducing the,

number of product lines, especially if

they already had sufficient product lines

meeting standards levels, DOE notes

that whether elimination of product

linea is a benefit or a burden to a

manufacturer would depend largely on

its specific product line mix and position'

in that product market. Consequently.

DOE does not believe it would be

appropriate to consider these alleged

cost savings as a general, if

unquantifiable, benefit to manufacturers

attributable to standards.

Another comment suggesting an

unquantified benefit for manufacturers

resulting from standards was that if

standards were imposed, U.S.

manufacturers would be less vulnerable'

to competition from imported

appliances, especially from Japan. See,

€.g., Carrier Corp., 5-18/7, at 7. DOE

believes there is no basis for concluding

that standards \AJQuld insulate doml:~stic

manufacturers frorr! foreign competition.

Indeed, a substantial case 'could be

made that efficiency standards for

appliances vvould benefit foreign

competitors at the expense of domestic

manufacturers. These commenters first

rnaintain tha t the marketplace will not

result in more efficient products being

built, because "-getting people too buy

higher efficiency equipment is [a

problem]." Id., at 6. These commenters,

however, do not explain l/Vhy more

efficient foreign equipment would then

be successful in the U.S. market, where

U.S. equipment supposedly is not.

Efficient foreign equipment will only

find a market in the U.S. if there is a

demand for more efficient equipment. If

that demand is artificially created by

government regulation before the

marketplace V'lould create the demand,

foreign competitors 'wo\lld gain an

advantage, because they have already

developed the more efficient lines. No

ne1ftJ investments, for them would be

necessary; no ~ange-over costs would

-be incurred. Consequently, DOE

concludes that the negative impacts on

manufacturers from foreign competition

are not lessened by stand~rds, but, if

anything, are increased.

B. Consumers. One measure of the

economic impact on consumers

attributable to standards is through a

life cycle cost analysis. Under Section

325 of the Act, however, the life cycle

cost impact of standards is a separate

factor to be considered. See Section

325(d){2). 'Accordingly, the life cycle cost

impacts are discussed infra.

Nevertheless, increased first costs can

also impact consumers. That is, as

suggested in the April19S2 proposal, as

a result of increased first costs, certain

consumers may retain products longer

than they otherwise would, even beyond

their normal life. Other consumers might

purchase second-hand, rather than new

appliances, again generally resulting in

an aging of the existing stock of

appliances beyond that which '\tvould

exist absent standards. '

Some manufacturers and trade

associations submitted data indicating

reduced sales of certain appliances in

,States after the imposition of State

standards. This data, they said,

supported the conclusion that imposition

of standards, with resulting first-cost--

increases, would result in reduced sales.

California, in 'particular, however.

submitted data in response to

comments, suggesting that the indicated

decrease in sales was unrelated to the

imposition of standards. DOE has

reviewed all these COIr.t111ents and

concludes that there is no substantial

evidence that the imposition of State

standards has resulted in any significant

reduction in sales of products subject to

the standards. Similarlv. DOE does not

believe there is substa~tial evidence

that imposition of any of the potential

national standards analyzed would

result in any significant reduc,tion in

sales of products subject to such

standards.44 That is, while increased

44 DOE updated an analysis contained in

Appendix J of the Ec..o\D. See EcAD, at 595. This

analysis proj"ects the number of appliance purchases

forgone as a result of standards by various income

first costs attributable to standards

might still result in certain 'consumers

not purchasing products, whereas

without standards they might h'ave. the

number 50 a~fected is not large enough

to impact significantly overall sales

figures.

In the P",pril1982 proposal, DOE

indicated that the group most likely to

be affected the greatest by increased

first costs vV'ould be lower income

persons. Commenters on the proposal

did not generally argu'e with this

conclusion.45

The EcAD, at 595, indicated for

certain products the projected number of

purchases forgone as a result of

increased first costs attributable to

standards set at the June 1980 proposed

level. 1;0 the Supplement, DOE has

improved and updated the analysis of

appliance purchases forgone as a result

of increased first costs attdbutable to

standards. Both analyses confirm the

disparate first-cost impact on lower

income persons. As a result, some lower

income persons may in effect be forced

to retain products past their normal life

or purchase older, used appliances.

These oIde,r.products are generally less

efficient than newer models to begin

with, and for some appliances initial

eff~ciencies are likely to deteriorate over

time, especially if they are retained

beyond their normal1ife or are not

properly maintained. 46 Thus, some

lower income persons might, because of

standards. be forced to live with less

efficient products and thus use more

energy. Or the person migpt simply be

forced to do \vithout that type of

product. However, if no standards 'were

imposed, it \tvould be possible for a '

lower income person to purchase a new

product VIith a higher efficiency than the

model it was replacing, albeit at an

efficiency less than might be available

under standards.47

groups. While this analysis and its update indicate

that lower income persons are most negatively

impacted by increased first costs, they'also indicate

that the absolute number of appliance purchases

forgone are not significant as a percent of total

sales. See Supplement.

4i) As indicated infra, however, a number of

commenters disagreed with DOE's ultimate

conclusion that lower inCOlne persons would be

harmed by the imposition of standards.

46 Comments were received with respect to

decreased efficiencies over time for room air

conditioners, and refrigerators.

47 Both analyses indica te tha t the total number of

lower income persona affected in this way is too

small to impact national energy use. Thus. the

bu.rden of this impact of a standard is not its effect

on national energy use, but the imposition of a

burden on the lower income persons effectively

precluded from purchasing a deBirBd appliance. See

infra.
 CAS-RM-78-110 COMMENT 10

39388 Federal Register I Vol. 48, No. 169 I Tuesday, August 30, 1983 I Rules and Regulations =

In the April 1982 proposal, DOE

indicated that'it believed that effectively

precluding some persons, especially

lower income persons, frf;Jm purchasing

a new appliance would be a significant.

burden to be attributed to standards,

even if the number of persons affected

was small. The burden is significant

because some persons are effectively

precluded from obtaining the appliance

at all and others are forced to retain or

obtain an older appliance that may

result in their having increased energy

use and costs. ~1oreover, some

consumers may not be' able to purchase

the appliances they desire, either

because of the government standard or

because of the increased cost of the

appliance attributable to standards.

Thus, this burden has both an economic

and an unquantifiable social cost

involving the effective loss of some

ecbnOlnic freedom. 48

Several consumer-oriented interest

groups argued,llowever, that many

lower income persons are renters,

whose landlords \vould purchase the

least expensive and least efficient

products. See, e.g., Consum~rs Union,

No. 2085, at 8. Such lower income

persons, it was suggested, would benefit

from standards because standards

would force landlords, over time, to

upgrade the efficiency of their

appliances to the benefit of the -lower

income renters that would pay the fuel

bills. However, little data \'\las submitted

on the issue. Although, it would appear

that landlords whose rental units remain

affordable to lower income persons are

not likely to be in a position to invest in

the improved energy efficiency of their

units, no evidence has been presented to

specifically support this position.

t·!1oreovef, if landlords of lower income

persons Vlere required to buy more

expensive, albeit, more efficient

appliances, as a result of standards, the

landlords '\-vould probably recover the

increased first cost through higher rents

or through a reduction in services. Thus,

it is not clear that standards requiring

higher efficiency products would

generally benefit lo\ver income renters.

Moreover, it would be difficult to

quantify an economic benefit of

standards for lower income persons. For

example, while a large percentage of

.8A number of commenters on the April 1982

proposal noted that Appendix Jof the EcAD was

primarily concerned with measuring the impacts of

standards on income inequality in the United States.

The conclusion of that analysis in Appendix Jwas

that effic~ency standards would have no significant

impact on income inequality. DOE did not mean to

suggest otherwise, and no commenter disputed that

conclusion. so DOE has not updated that analysis. '

The income inequality analysis. however. based on

life cycle costs is different from the analysis of the

impacts of increased first costs.

lower income persons ar'e renters, rather

than owners of their dwellings, 49 the

largest energy using products (furnaces,

water heaters, and central air

conditioners) in multi-family, rental

buildings are often, if not usually, not

consumer appliances under the Act and

therefore vvould not be subject to

possible standards. 50 Room air

conditioners, moreover, often are not

and freezers are almost never provided

as equipment in lower cost rental units,

but must be bought by the lower iI?-come

renter. Thus, the potential" benefits to

lower income renters would primarily be

with respect to refrigerators and

refrigerator-freezers. Even here,

however, if a landlord provides the

cheapest equipment, it would likely be a

manual defrost refrigerator, which even

now uses less, energy than almost all

other refrigerator-freezers lf/ould under'

the most stringent standard. Finally, .

some lower income renters will have

their utility costs included in the rent, so

that the landlord, rather than th.e renter,

would be faced with the fuel costs. 51 In

addition, some landlords might pass

through any increase in first cost for

equipment in the rent, or might diminish

services in order to recover the cost of

the equipment. Thus, DOE believes that

lovver income renters \AJould as a group

generally neither benefit from an energy

efficiency standard. nor be harmed by a

standard. ffowever, individual renters

could face reduced housing choices if

landlords are required to install more

expensive equipment as a result of

appliance efficiency standards.

In weighing the impact of a standard

on lo"'vver income purchasers of

appliances against the impact of a

standard on IO'vver income renters, DOE

is a \rvare that in a sense it is weighing

unlike impacts. Thus, it would be ,T"::"" ..............,._•• ".., ..... - to weigh the number of

'persons benefited against the persons

burdened or the dollars of econorrlic

burden against the dollars of economic

benefit. In the product-specific

discussion, the vveighing in terms of the

particular product is addressed.

49 Almost sixty percent of lower income

households rent. rather than OVV'll. their homes. See

Housing Characteristics, 1980, DOE/EIA-0314

(1982], at Table 5.

st> Over 5 million households live in buildings With

five or more units with a central heating system.

Over 11 million households live in buildings with

two or more units with a central hot water system.

Over 1 million households live in buildings with five

or more units with a central air conditioning system.

See Housing Characteristics, 1980, DOE/EIA-0314

(1982). at Table 19.

51 Only 55 percent of renters pay all their utilities

themselves. Over 15 percent of renters have all their

utilities paid by their landlord; that is, their utilities

are included in the rental cost. Housing .

Characteristics. 1980, DOE/EIA-0314 (1982), at

Table 3.

2. Life Cycle Cost. Section 32~(d](2) of 

the Act requires DOE, in weighing the

benefits and burd.ens of possible

appliance standards, to consider '~the

savings in operating costs" over the life

of product compared to any increase in

the price and maintenance expense~ of a

product resulting from the imposition of·'

a standard. In other words, DOE is to

consider the effect on life cycle costs to

a consumer that would result from

standards.

Th~ Net Present Value (NPV) analysis

is a measurement of the difference

between a standards case and the base

case for all the units of a product

purchased over a given period 52 in

terms of a dicounted present value of

the life cycle costs of those units. See

EcAD, at 14. This measurement is'made-'

by the ORNL Model.

A positive NPV for a product ~t a .

given.standard level indicates that~ if .

that standard were adopted, consumers

of that product as a '\tvhole would save

that much more money in fuel costs over

the lifetime of the product, discounted to

1980, than they would pay in increase-d '

first costs for more efficient products,

discounted to 1980 compared to the

situation vvhere no standard is 

adopted. 53 A positive t.JPV does not

signify that the economy as whole

benefits (as opposed to consumers of

that product). The NPV analysis oQ.ly

compares consumer fuel cost savings

against increases in product prices to

consumers. For example, the

government costs in maintaining and

enforcing a particular product standard

are not subtracted from the net present

value. The NP"\r analvsis is similar to the

Life Cycle Cost (Lee) analysis, see

infra, and the greatest r.Jpv generally

should occur at the standard level set at

the Lce mInimum for the product. 54 The

S2 In the April 1982 proposal all NPV calcula tions

were made for purchases over the period 1987-2005.

While the time period for measuring energy savings

has generally been changed from the period 1987-

2005 in the April 1982 proposal, to the period of the

a verage life of the product in question. see 47 FR

57203, DOE has not changed the time period for the

NPV calculations. This is due to DOE'S

determination that there would be no substantial

change in the results of the NPV analysis as a

consequence of changing the time period. and the

coding changes would have been both expensive

and time consuming.

53 All NPV's in the analysis overstate the benefit

of standards to some degree because the base case

analysis did not subtract manufacturer compliance

costs. e.g.• certification and testing. from the base 

case product prices. This overstatement. however, is

minor.

54 Because the NPV analysis is done using the

ORl'PLt Model and the LCC analysis is done through

its own model. this direct correlation may not exist

between the two models' data. ,
 CAS-RM-78-110 COMMENT 10

__u Federal Register / Vol. 48, No. 169 / Tuesday, August 30, 1983 I Rules and Regulations . 5 _ , _~... _.awu&iJ.. ~~. == ,_ ca::;:z;aa.; ~.i&iP...

39389ts

1. Technicallssues. The industry

Dlembets who commented on the

engineering analysis for refrigerators

and refrigerator-freezers were'generally

in agreement that the specific design

options considered by DOE for

first cost increase to achieve that affect the life cycle cost minimum for a

efficiency may be greater than the product.

discounted value of the energy saved. As part of this final rule DOE

Thus, it is possible for a mandatory conducted a regional sensitivity analysis

efficiency standard to eliminate from the to determine with respect to ~ach Sta te

market the most cost-effective product (and in some cases, portions of States)

for a particular consumer and what the life cycle cost minimum was

consequently penalize that consumer. for certain classes of products. In this

lvloreover, an energy efficiency standard way the effect of combinations of usage .

could also result in the elimination from and fuel price differenc,es from the

the market place of the most cost- national average could be tested in

effective product for the average terms of actual.impacts of possible

consumer. standards. That is', rather than reflecting

In the April 1982 propos,al DOE whether a standard ~"ould or would not

indicated its view that, if a standard ban the most cost-effective model for

would have the effect of eliminating some theoretical consumer with

from the market an existing appliance particular usage and fuel price

that would have a lower life cycle cost characteristics, this analysis shows in

to the average consunler than the what States, if any; the most coststandard level, DOE would consider' that effective model would 'be banned by a

a substantial burden in assessing the' particular standard. The results of the

benefits and burdens of a standard to analysis, as appropriate, are discussed'

determine its economic justification. See in the product-specific discussion.

47 FR 14432. No commenter took i~sue In the Apri11982 proposal, DOE

with this view. 56 compared the life cycle cost of the

If a particular standard analyzed average product in 1978 to the life cycle

livould have the effect of barring the cost of a product meeting the various

most cost-effective model of a product possible standards levels. In most cases

from the marketplace, this is raised in the life cycle cost of a product meeting

the product-specific discussion. the standard level was less than the life

In both the Apri11982 proposal and cycle cost of the average 1978 product.

the comments thereon, it was noted that This comparison, however, it was noted, , was not particularly meaningful. See 47

the Lce analysis was based on the FR 14432. While this analysis has been

average consumer in term~ of both updateq., see Supplement, DOE has also

energy prices and usage. It was also compared the life cycle cost ofthe

noted that consumers with below projected ayerage product in 1987 (the

average energy prices or usage might be year standards would apply to 'the life

penalized even if ,a standard did not cycle cost of products at the various

penalize the average consumer. In the standard levels. This analysis mO,re

April 1982 proposal, DOE conducted a appropriately reflects the dollar'

sensitivity analysis to assess to what difference in the average product's life

extent this might be true. With the cycle cost in a no-standard environment

exception of certain classesof central and a standard environm,ent. The results

and room air conditioners, however, the of this analysis are reflected in the

sensitivity analysis discerned no product specific discussion.

difference in the life cycle cost minirna Some manufacturers complained tha t

for the products analyzed at the DOE did not include increased

differentusage and fuel prices analyzed. nlaintenance costs as part of the life

The April 1982 proposal acknowledged cycle cost analysis eX,cept with respect

that the s.ensitivity analyses vvere to the product furnaces. DOE has

limited, espec~ally in variations on fuel considered theae comments, but there is

prices 57 and the fact that there was no insufficient evidence of increased

analysis of combinations of 10v'/ prices maintenance ,costs occurring as a

and low usage. Many commenters function of hicreased efficiency of

stressed that these limitations appliances to justify any change in the

undermined the conclusion of the Lee analysis.

sensitivity analysis that in most cases

variaHons from the average did not III. Product Specific Discussion

a.Refrigerators and RefrigeratorFreezers 56 In the December 1982 final rule, DOE found that

the only standard levels that would save any energy

would penalize the average consumer by prohibiting

the most cost effective models of the products in

question. See 47 FR 57211-57213.

~'T The April 1982 proposal's sensitivity analysis

only varied fuel prices by less than 5 percent from

the average price. whereas differences in electricity

prices in the U.S. can vary 80 percent from the

national ave~age. See 47 FR 14433.

".Obviously, where different models have

different features, the consumer may make

purchasing decisions based on the value which the

consumer places on a particula~ feature. ~ower

energy use which would result In l~wer hfe cycle

costs is only one fea ture of an apphance, and would

be subject to the same type, of consumer decisionmaking 86 would other fea tur~5.

NPV for each product at the different

standard levels is identified in the

product-specific analysis.

The only comments directly

concemino the NPV analysis were those

of the NRDC and the California Energy

Commission (eEe), criticizing the DOE's

use of the 10 percent discount rate

indicated in OMB Circular A-94 for

discounting future energy cO,st savings to

1980. Essentially, these commenters

complained that Circular A-94 did not

apply to regulato~y programs but o~Jy to

Government investments, and that a

iower discount rate was more

appropriate. Nothing in Circular A-94

limits its applicatiC?n to consideration of

Government investments or excludes

regula tory programs. Even if.there were.

if a 10 percent discount rate IS an

appropriate basis for measuring the

present value to the Government of

future savings the commeJ}ters have not

sufficiently established why the present

value to consumers from the same future

savings shou~d be different. :tY!oreover,

DOE believes a 3-6 percent dIscount

rate, suggested by the commenters, is

inappropriately low. See GEC, No. 2097,

Comments 'of the Staff of the

Conservation Division of the GEG, at l'

(assuming 40 percent marginal tax rate

for consumer).

Separate from the NPV analysis, DOE

also conducted an LGe analysis of

individual products and classes of '

products to assess the life cyc.le cost

minima for the various classes and

products. See EcAD, at .i\ppendix G. The

Lee analysis, therefore, is useful in

identifying those energy efficiency levels

at which the average consumer's

economic benefits are maximized and

his burdens minimized. . In the absence of mandatory

government standards, a consumer

purchasing an applicance has t~e

freedom of choosing among varIOUS

models of a product and, with sufficient

informaHon, can choose the model

ltvhich offers the features which the

consumer requires, including the lowest

life cvcle cost. This would enable the

consGmer to purchase the most costeffective product.55 Depending upon the

level at \vhich a mandatory efficiency

5 tandard is set, a consunler ITlay be

deprived of the freedom to purcha.se .the

most cost-effective product. That IS, If

the minimum energy efficiency standard

is sufficiently demanding, the resulting
 CAS-RM-78-110 COMMENT 10

/ Vol. 48, No. 169

Rules and ..."..... ,r.;,""lJ.U.LJ.V.U.D

59 DOE ran two sensitivity analyses of the ORNL

Model projections of energy savings. One

substituted a constant distortion rate for the

algorithm; the other substituted the historical rate of

increased efficiency for that derived by the ORNL

Model. At level 3 the results were 2.03 Quads and

0.27 Quads, respectively. Neither amounts would

satisfy the first two tests of significance.

, As discussed supra, DOE did not

update the standard levels for

refrigerators because of serious tin1e'

cons'"traints. DOE could not assess· all

ne'''' models now available in the

marketplace, alter the "cost books" for

these products, and rerun all its

compliter rnodels in a reasonable time

franle s especially in light of the court-

-approved deadlines set by a settlement

agreement with Consumers Union and

NRDC. Moreover, because of the

changing nature of refrigerators, which

have sho"Vvn substantial energy

improvements over the last several

years, any additional delay t9 increase

standard levels would not guarantee

inclusion of the most efficient model as

a startdard level by the date of issuance

of the final rule. However, within the,

time available DOE did analyse two

additional des~gn options for

refrigerators and refr~gerator-freezers

which are recently available in the

market. They are high-efficiency

compressors and separate evapqrator

coils for the freezer and the fresh food

compartment. As a result of the analysis

of these additional design options, DOE

established one additional costefficiency data point for each of the

seven classes .of refrigerators and

refrigerator-freezers. In each case, the

ne\¥ efficiency data poin.t was higher

than the highest one previously

considered. Moreover, vv-hile DOE did

not consider the Toshiba refrigerator

model in its engineering analysis, the

analysis of the partial automatic defrost

class included an a.dditional design

option of a high efficiency compressor

""hich raised the highest efficiency level

analyzed to an energy factor of 12.3. The

Toshiba unit has a lower energy factor

which \41aS not considered in the

analysis. All of the nevv data points

were included in the ORNL Model,

improving the cost effic~ency curves and

the ORNL 1\o1odel's life cycle cost curve

a t the higher efficiency levels.

2. Significance ofEnergy Savings. The

table below reflects the energy savings

projected by the ORNL model

attributable to a standard for

refrigerators and refrigerator-freezers at

each of the three standard levels

analyzed over the period 1983-2005.

Levell-D.25 Quads

Level 2-0.85 Quads

Level 3-1.65 Quads 59

S8 The depth of units is increased 0.5 inches in

some design options for some classes and the width

increased 1 inch in some design options of some

classes. The interior volume is decreased 0.4 cubic

feet in some design options of some classes.

VJould be too wide or too high to fit into

the space occupied by the existing

refrigerator.

The EnAD identifies several design

options that either increase the exterior

dimensions of some classes of

refrigerators and refrigerator-freezers or

decrease the interior" voiume. S8 Such

increases in exterior dimensions or

decreases in interior volume, DOE

agrees, "V'Jould reduce utility. In the

Supplement, see infra, DOE has

. analyzed the effects of high-efficiency

compressors and separate evaporator.

coils for refrigerator-freezers. While the

analysis did not specifically address use

of such oDtions to achieve levels of

efficiency without any in~rease in

interior dimensions or decrease in

interior volume of refrigerator-freezers,

DOE believes the efficiency levels

analyzed as possible standards levels

could, viith these advanced design

options, be reeched without changes in

exterior or interior dimensions, because

the advanced design options ¥lould

increase the efficiency of standard size

units sufficienty to meet the standard

levels.

Both the CEC and the ~JRDC

commented that the highest efficiency

level "vhich DOE evaluated in its

engineering analysis is below that which

is technically feasible utilizing available

technology. In addition I'JRDC and the

City of New York alleged that a

Japanese manufacturer, Toshiba,

currently markets in Japan a high

efficiency refrigerator, model GR-411,

which consumes much less energy than

the highest efficiency unit of comparable

size manufactured in the United States.

P~nnual energy consumption for the

Toshiba GR-411 unit was said to be 550

kvVI-I per year and its energy factor,

11.5. In response to these comments to

the P!.ssociation of Home i\ppliance

~~/Ianufactllrers and Whirlpool

Corporation asserted that NRDC and the

City of New York were in error in

describing the Toshiba unit as a "frost

free" design. According to Whirlpool

Corporation, the unit is a "cycle defrost"

mode with an manual defrost freezer

compartment. VVhirlpool remarked that

the comparison made by the City of

New York betV'Jeen the energy

consumption of the Toshiba unit and

that of the highest efficiency domestic

unit of comparable size should reflect

some difference in energy consumption

since the domestic unit is a "no-frost"

model.

Federal

improving the efficiency of this product

are appropriate. However, the General,

Electric Company (GE) questioned the

cost-effectiveness of two of these design

options. GE stated that the double door

gasket design option is cost-effective

only on automatic defrost models. For

manual defrost and for partial automatic

defrost models, GE contended that there.

is little improvement in efficiency ,

associated with, a second door seaL The

second design option GE questioned

was reducing the heat load of throughthe-door service features. GE contested

using foam insulation to reduce the heat

load in through-the-door service as a

cost-effective design option. GE did not

provide any test data in support of its

position nor any energy savings versus

cost estimates to demonstrate that either

of these design options are not costefi.ective. In its own investigation of this

issue, DOE has not found evidence in

the public -record or in any substantiated

technical literature to suggest that the

cost and efficiency values developed for

these design options are inaccurate.

Therefore, DOE has made no change to

its engineering analysis regarding these

design options.

Whirlpool Corporation expressed

concern that \'vhile the efficiency levels

VJhich DOE evaluated in its engineering

analysis nlay be technologically

feasible, in many cases they can only be

attained by sacrificing product utility.

Whirlpool set forth several factors,

which are considered in developing a

new refrigerator or freezer design, and

stated that no single factor can be

maximized without crea ting quality or

'performance problems that consumers

would find unacceptable. An example

cited by Whirlpool concerned the

efficiency improvernent associated with

the direct replaceme~t of fiberglass

insula.tion with foam insulation in

existing refrigerator and freezer designs,

a design change that has already been

effected by some manufacturers.

Whirlpool stated that such design

change has generally been applied to

units that already have relatively thick

wall cavities. Whirlpool asserted that if

DOE were to issue a standard for a

particular class of product based on the

efficiency of such units, it could have, the

adverse impact of eliminating designs

which incorporate thinner walls to offer

consumers the special utility of

maximum internal volume for a given

external size. Whirlpool alleged that this

could adversely impact consumers in

cases where a consumer's space is

limited, resulting in the possible

replacement of existing larger capacity

refrigeraiors with units of sma'ller

storage capacity because the t:Iew units
 CAS-RM-78-110 COMMENT 10

Federal Register / Vol. 48, No. 169 / Tuesday, August 30, 1983 / Rules and Regulations 39391 1M XL

DOE projects that a savings of 1.65

Quads of electricity would not save

more than 0.044 Quads of oil and 0.101

Quads of natural gas over the 19-year

period 60 which averages to 1,084 barrels

per day of oil savings and 14,227 mcf per

day of natural gas savings. This is only

11 and 25 percent, respectiv,ely, of the

amount DOE ·deems significant.

The maximum savings attributable to

standards would constitute less than

0.22 percent of the electricity used in the

Nation over the 19-year period.S ! This is

only 0.22 percent of the one percent

savings that DOE deems significant.

For the year 2006, the highest level of

savings attributable to standards would

constitute 14.59 percent of the enetgy

that would have been consumed by

refrigerators and refrigerator-freezers in

the absence of standards, which is less

than the 16.67 percent that D'OE would

deem significant. 62

On the basis of the above, DOE

concludes that standards for

refrigerators and refrigerator-freezers

would not result in a significant

conservation of energy.

3. Economic justlfication. A.

Economic Impact Manufacturers. In the

EnAD accompanying the April 1982

proposal, the DOE indicated that the

cost for the most prevalent class of

product, the automatic-defrost

refrigerator-freezer with top mounted

freezer, increases less than $10.00 or 5

percent over the baseline unit. Other

models, however, especially the lo'v'lest

priced classes of product, had increased

costs of up to 10 percent. See EnAD,

Tables 1.15 and 1.16. None of these

figures was disputed in the comments

received on refrigerators.

The effects of these increased costs on

medium-sized firms is reflected in the

FI~v1. The FIM predicts that a

prototypical medium-sized manufacturer

would suffer a 15 percent increase in

'business risk at level 3 and a 25 percent

increase in business risk at the next

lowest level. See Supp. to EcAD, Table

eo This assumes that oil constitutes 2.65 percent

a,nd gas 6.15 percent of the energy used to generate

electricity over this time period. These percentages

are the average of the projected proportions for. the

years 1990 and 1995. In the absence of specific data

for each of the years 1987-2005, DOE used these

years. which it believes is a conservative choice.

See 1981 Annual Report to Congress, Volume 3:

Forecasts, DOE/EIA 0173 (81J/3, February 1982.

.1 Electricity used over the period 1987-2005 is

estimated to be 756.6 Quads. It is derived through

linear extrapolation of the estimate made for the

years 1985. 1990 and 2000. U.S. Department of

Energy, July 1981, "The National Energy Policy

Plan," Table1.' .

62 As indicated above, DOE ran-two sensitivity

analyses of the level 3 savings. Under the constant

distortion rate the percentage savings are 15.94

percent. Under the historical trend analysis the

percentage savings projp.cted would be 1.65 percent

A.4-1. By 1991 (the last year of the

analysis), the FIM predicts that the

prototypical medium-sized manufacturer

would have a 94 percent decrease in

profitability, while the large and small

manufacturers would have a 5 and 11

percent decrease, respectively. See Id.,

l"able .l\.4-2. At the standard level that

would save the greatest energy, the

prototypical small firm's debt/equity

ratio deteriorates by almost 50 percent.

See Id., Table A.4-8.

As indicated in the General

Discussion section, the FIM impacts are.

fully accurate only to the extent that the

prototypical firm did not make

investments in improving appliance

efficiency as part of its historically

indicated investments. 6s In the case of

refrigerators and refrigerator-freezers, in

the base case by 1987 the ORNL ~10del

projects that the SWEFwill be 6.62 EF

(Energy Factor). From the EnAD this

would indicate that 52 percent of the

necessary investment to achieve the

highest standard level would be made

as part of historically indicated

investments. Thus, ~he FIM negative

impacts actually attributable to the

highest standard level should be

reduced by about 52 percent. Even with

this reduction, the negative impacts of

standards for refrigerator-freezers

remain substantial for medium-sized

firms.

, In addition to the above mentioned

quantified impacts on rnanufacturers, an

effect of a standard, as indicated

previously, would be to require certain

investments to be made that might not

otherwise have been made. These

required investments may result in the

forgoing of certain other investments

which would be more beneficial to the

manufacturer. Commenters who

addressed this point generally supported

this conclusion.

B. Economic Impact on Consumers.

As indicated above, and in ihe April

1982 proposal, DOE found that the

greatest increased costs to consumers

for refrigerators and refrigeratorfreezers are in the lowest priced classes

of products. EnAD, Table 1.16.

Nevertheless, DOE's analysis of

appliance purchases forgone as a result

of increased price indicates that the

income elasticity of· refrigerators is

extremely low, suggesting that hardly

any refrigerator purchases.would be

forgone as a result of efficiency

standards. Since In.any lower income

63 This conclusion, however, applies only to the

"average" (in terms of the shipment weighted

efficiency of its product) prototypical firm. The

negative impacts ex.perienced by a firm that had

made limited or no investments in improved product

efficiency would still approach or be those reflected

by the FIM.

consumers rent housing that includes

refrigerators and refrigerator-freezers,

the imposition of standards on these

products could positively benefit these

consumers by lowering electricity costs.

Although, on the other hand, if landlords

furnish rnore efficient units it is quite

.probable that they would recover the

increased first cost through increased

rents or through reduced services. On

this basis, DOE concludes that the total

impact of standards for refrigerators and

refrigerator-freezers on lower-income

consumers is slightly positive. DOE is

unableto qualify this benefit but given

the relativity small life cycle cost

savings for the least expensive classes

('~vhich low income renters would most

likely be provided by landlords) .and the

number of low income persons' who both

rent and pay 'all their utilities, DOE

believes the benefit to low income

consumers as a class is slight.

C. Llfe Cycle Cost. No specific

comments were received concerning

DOE's determinations on the life cycle

cost of refrigerators and refrigerator-

. freezers. The LeC analysis indicates

that the possible standard level with the

lowest life cycle cost is level 3. See

Supp. to EcAD, Appendix G. This

indicates that the highest standard level

would not cause any economic burden

on the "average" consumer.

1'he NPV analySIS indicates that if a

standard were adopted at level 3 there

would be a net present value of $1,961.1

million from energy savings over the

period 1987-2024. If the net present

value were spread across the Nation,

the resulting benefits would be less than

80 cents a year per household.

D. Energy Savings. As indicated

previously, the maximum savings

attributable to standards for

refrigerators and refrigerator-freezers

under any of the analyses would be 1.65

Quads of electricity.

E. Lessening ofUtility or Performallce

ofProducts. In the .l\pril 1982 proposal,

DOE established new classes of

products in order to assure that the

standards analyzed would not lessen

the existing utility or performance of

refrigerators and refrigerator-freezers.

vVhirlpool cornmented that at level 2

standards, there is some loss of utility

for most classes and a significant loss in

a few. At level 3 standards, Vvhirlpool

stated that the suggested levels would

result in significant loss of utility. The

manufacturer commented that DOE did

not consider exterior dimensions in its

analysis, and that because of space

limitations in current kitchens,

manufacturers would have to sacrifice

interior volume, thereby reducing the

appliance's utility to the consumer. In
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39392

the technical discussion section, DOE

concluded that this comment had merit,

but tha t use of more recent, hightechnology designs might be able to

avoid this loss of utility. There is,

however, no assurance that future utility

or performance of refrige~ators and

refrigerator-freezers would not be

lessened as a result of disincentives

caused by standards to investments in

energy-using new fea tures.

F. Impact ofLessening Competition.

The Attorney General has determined

that the absence of a Federal standard

for refrigerators and refrigeratorfreezers would have no in1pact on

competition.

G. Need to Save Energy. Refrigerators

and refrigerator-freezers use electricity

exclusively as their energy source.

\tVhile almost three percent of the

Nation's electricity povvers refrigerators

and refrigerator-freezers, less than eight

percent of that three percent would be

saved by standards for this product.

H. Other Factors. The negative

impacts on small manufacturers of

refrigera tors for this product have been'

presented above. Only with respect to a

small firm's debt to equity ratio,

however, was there any significant

negative impact. In the April 1982

proposal, however, DOE explained its

belief that the FIM understates the

negative impact of standards on small

firms. No comments were received

disputing this general conclusion. Thus,

DOE concludes that the negative

impacts projected by the FIM (as

adjusted) underst.ate the negative impact

of standards of small manufacturers of

refrigerators. and refrigerator-freezers.

Weighing ofFactors

The benefits of a standard for

refrigerators and refrigera tor-freezers

are, compared to the base case of no

standards, that it would save energy,

have a positive net present value and

have a slightly positive impact on lowerincome consumers. At level 3 these

benefits are not minimal, but over the

period of time involved and numbers of

households involved, the benefits

remain relatively small. .

The burdens of a standard are: (1) It

would adversely affect the financial

well-being of medium-sized firms

making refrigera tors and refrigeratorfreezers, in some cases causing a

significant threat to their continued

existence; (2) It might lessen the utility

or performance of some current smaller,

space constrained models and lessen

the utility or performance of this product

in the future by creating a disincentive

to the development of energy-using new

features; and (3) It could cause

investment resources by manufacturers

of these products to be allocated in a

manner that is not the most beneficial to

the manufacturer.

In light of all the factors DOE has

determined that the burdens of an

efficiency standard for refrigerators and

refrigerator..Jreezers outweigh the

benefits.

b. Freezers

1. Technical !ssues. The industry

members who commented on the

engineering analysis for.Jfreezers were

generally in agreement that the specific

design options considered by DOE for

improving the efficiency of this product

are appropriate. However, Whirlpool

Corporation expressed concern that

while the efficiency levels which DOE

evaluated in its engineering analysis

may be technologically feasible, in many

cases they can only be attained by

. sacrificing product utility. Whirlpool set

forth several factors which are

considered in developing a nevv

refrigera tor or freezer design and sta ted

tha t no single factor can be maximized

without creating quality or performance

problems that consumers v\Jould find

unacceptable. An example cited by

Whirlpool concerned the efficiency'

improvement associa ted with the direct

replacement of fiberglass insulation

with foam insulation in existing

refrigerator and freezer designs, a design

change that has already been effected

by some manufacturers. \tVhirlpool

stated that design change has generally

been applied to units that already have

relatively thick wall cavities. Whirlpool

asserted that if DOE were to issue a

standard for a particular class of

product based on the efficiency of such

units, it could have the adverse impact

of eliminating designs which incorporate

thinner walls to offer consumers the

special utility of maximum internal

volume for a given external size.

\tVhirlpool alleged that this could

adversely impact consumers in cases

where a consumer's space is limited,

resulting in the possible replacement of

existing larger capacity freezers with

units of smaller storage capacity

because the new units would be too

wide W too high to fit into the space

occupied by the existing freezer.

Unlike refrigera tors, where kitchens

and kitchen-cabinetry are designed with

a standard-size refrigerator in mind,

freezers do not occupy such an

accustomed niche in most homes.

Consequently, small increases in

exterior dimensions of freezers would

not appear to have as great an impact

on utility as similar increases in .

.... refrigerators. Moreover, it appears that

the use of advanced, high efficiency

compressors not·addressed in the EnAD,

see infra, could allow manufacturers to

reach levels of efficiency equivalent to

possible standards levels without

changing any dimensions of the freezer.

Commenters also stated that the

highest freezer energy efficiency level

analyzed by DOE is below that which is

technically feasible utilizing available

technology. As discussed supra, DOE

has concluded that the necessary

assessment of new models in the market

for possible standard levels, the

inclusion of these new levels in the

"cost book" and the rerunning of all

DOE's computer models would entail

considerable time. As a result of court

approved deadlines resulting from

settlements with Consumers Union and

NRDC, DOE did not have sufficient time

in which to conduct such an analysis.

Moreover, had DOE conducted this

analysis, by the time of the final rule,

newer, more efficient freezers would

have likely appeared in the market

place. However, DOE has reviewed its

engineering analysis and had added an

addi tional design option, improved

compressors, for all classes of freezers.

As a result, one additional costefficiency point has been established for 

each of the three classes of freezers. In

each case, the new efficiency data point

was higher than the highest one

previously considered. These new data

points were included in the ORNL

1\fodel, improving the cost-efficiency

curves and life cycle cost curve at higher

efficiency levels~ .

2. Significance ofEnergy Savings. The

projected energy savings attributable to

Ji standard for freezers at each of the

three standard levels considered over

the period 1987-2007 are:

Levell--D.19 Quads

Level 2-0.35. Quads

Level 3--0.58 Quads 64

A saviI:gs of 0.58 Quads of electricity

would save approximately 0.015 Quads

of oil and 0.036 Quads of natural gas

over the 21-year period. 65 At most, this

64 DOE ran two sensitivity analyses of the ORNL

Model projections of energy savings. One

substituted a constant distortion rate for the

algorithm: the other substituted the historical rate of

increased efficiencjL for that derived by the ORNL

Model. At level 3 the results were 0.685 Quads and

0.162 Quads. respectively. Neither amounts would

satisfy the first two tests of significance.

65 This assumes that oil constitutes 2.65 percent

and gas 6.15 percent of the energy used to generate

electricity over this time period. These percentages 

are the average of the projected proportions for the

years 1990 and 1995. In the absence of specific data

for each of the years 1987-2007, DOE used these

years. which it believes is a conservative choice.

See 1981 Annual Report to Congres8, Volume 3:

Forecasts. DOE/EIA 0173 (81)/3, February 1982.
 CAS-RM-78-110 COMMENT 10
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39394 Federal Register I Vol. 48. No. 169 I Tuesday. August 30, 1983 I Rules and Regulations

would be saved by standards for this

product.

H. Other Factors. The significant

neg?~tive effects of standards projected

l-uY the FIM on the prototypical small

manufacturer of freezers were presented

above. The business risk to small

manufacturers was shown to be

substantial. In the April 1982 proposal.

however, DOE indicated its belief that

the methodology of the FIM tended to

understate the negative impacts of

standards on small firms. No commenter

disputed this conclusion, either

generally or with respect to freezers.

Thus, DOE concludes that the negative

impacts of standards projected by the

FIM (as adjusted) understate the

nega tive impacts on small

manufacturers of freezers.

Weighing ofFactors

The benefits of a standard for freezers

are, compared to the base case of no standards, that it would save energy and

have a positive net present value. These

benefits, however, are minimal in

amount even under the highest standard

level.

The burdens of a standard are: (1) It

would adversely affect the financial

well-being of small and medium-size

firms making freezers, and in the case of

small manufacturers. causing a significant threat to their continued

existence: (2) it could lessen the utility

or performance of.this product in the

future by creating a disincentive to the

development of energy-using new

features: (3) it could cause less than

optimal allocation of investment

resources by manufacturers of these

products; and (4) it could preclude a

small number of lower income persons

from purchasing new freezers.

In light of all the factors discussed

here and in the discussion section

above, DOE has determined that the

burdens of an efficiency standard for

freezers outweigh the benefits.

c. Furnaces

1. Technical Issues. Some commenters

sugoested that DOE's analysis of

fur;ace standards was lacking in that

high efficiency designs such as the pulse

combustion/condensing furnaces

currently in the marketplace were not

included as possible standards. On the

other hand, the furnace industry

reiterated its position that DOE should

not consider standard levels that, in

effect, require all designs of furnaces to

operate at or near the condensing mode.

These commenters felt that prescribed

minimum levels as low as 80 percent

AFUE would result in corrosion .

problems in most heat exchangers. This

position was taken realizing that such a

level is below the 90 percent AFUE of

the condensing furnace designs recently

introduced into the marketplace. DOE is

aware that research and development

concerning condensing furnaces is

ongoing, and questions concerning

product life and pollution effects are not

totally resolved. In view of the

uncertainty associated with the

condensing mode of operation, DOE has

not analyzed standard levels that would

require all future shipments to operate in

the condensing mode, but realizing the

availability of recently developed

designs, DOE has included the

condensing furnace designs in the

engineering analyses cost efficiency

relationships, in light of their general

availability in the market

The addition of pulse combustion/

condensing furnaces and associated

costs results in efficiency data points

that are higher than those previously

included. These new data points were included in the ORNL Model which

improves the accuracy of the cost

efficiency curves and the Model's life

cycle cost curve at the higher efficiency

levels and improves the Model's

forecast of energy consumption. Today's

addendum to the EnAD describes the

incorporation of this additional data for

four classes of gas furnaces.

2. Significance ofEnergy Savings. The

projected energy savings attributable to

a standard for furnaces at each of the

standard levels analyzed under the

ORNL Model over the period 1987-2009

is set forth in the follOWing table.

Gas

Level 1-0 Quads

Level 2-0.01 Quads

Level 3-0.10 Quads.

Level 4-0.09 Q-gads

Oil ..

Level 1-0 Quads

Level 2-0 Quads

Level 3-0.07 Quads

Level 4-0.07 Quads 69

No analysis was conducted for

electric furnaces because they operate

near 100 percent efficiency since all of

the electric energy is transferred into the

conditioned space. . Over the 23-year period, the greatest

savings of natural gas under-the ORNL

Model is the equivalent of 11,582 mcf per

day or 20.5 percent of the amount that,

DOE considers significant. The greatest

•• DOE ran two sensitivity analyses of the ORNL

Model projections of energy savings. One

substituted a constant distortion rate for the

algorithm; the other substituted the historical rate of

increased efficiency for that derived by the ORNL

Model. At level 4 for gas, the results were 0.27

Quads and 1.352 Quads, respectively. At level 4 for

oil. the results were 0.343 Quads and 0.916 Quads.

respectively.

oil savings is 1,414 barrels per day or

14.1 percent of the amount that DOE

considers significant.

No electricity is saved by the

imposition of standards at any of the

levels analyzed.

For the year 2010, the highest level of

savings attributable to standards would

constitute only 1.06 percent of the

energy that would have been consumed

by oil furnaces in the absence of

standards and 0.28 percent of gas use,

which is less than the 16.67 percent that

DOE would deem significant.70

On the basis of the above. DOE

concludes that standards forfurnaces

would not result in a significant

conservation of energy.

3. Economic Justification. A.

Economic Impact on Manufacturers.

The EnAD accompanying the April 1982

proposal indicated that the increased

cost to a manufacturer to meet the level

4 requirement for gas. forced air

furnaces, which constitute two-thirds of

the market and are the least expensive,

would be over $100. However, the

increased cost for the highest level

analyzed of oil, forced air, indoor

furnace, which is the most prevalent oil

furnace; would be $13.46 per unit. EnAD,

Table 4.19.

None of these figures was contested in

the comments to the April 1982 proposal.

The impacts of these increased costs are reflected in the FIM. The FIM

predicts that a prototypical mediumsized manufacturer would suffer a 10

percent increase in business risk at all

the efficiency levels that were studied

as a result of standards. See Supp. to

EcAD, Table A.4-1. By 1991 (the last

year of the analysis), the FIM predicts

thai the prototYiJical medium-sized

manufacturer will have a 32 percent

decrease in profitability, while the large

and small manufacturers will have a 23

and 7 percent decrease, respectively.

See Id., Table A.4-6. At the standard

level that would save the greatest

energy, the prototypical medium firm's

debt/equity ratio deteriorates by almost

200 percent. See Id., Table A,4-8.

As indicated in the General

Discussion section, the FIM impacts are

fully accurate only to the extent that the

prototypical firm did not make

investments in improving appliance

efficiency as part of its historically

indica ted investments. 71 In the case of

'0 As indicated above, DOE ran two sensitivity

analyses of the level 4 savings. Under the constant

distortion rate the percentage savings are 1.79

percent for gas and 2.23 percent for oil. Under the

historical trend analysis the percentage savings

projected would be 0.69 percent for g89 and 14.SS

percent for oil.

, 1 This conclusion. however. applies only to the

"average" (in terms of the shipment weighted
 CAS-RM-78-110 COMMENT 10

Federal Register I Vol. 48, No. 169 I Tuesday, August 30, 1983 I Rules and Regulati~nS

furnaces in the base case by 1987 the

ORNLModel projects,that the SWEF

will be 76.5 pereent for gas and 85.9

percentIor oll fired furnaces. From the

EnAD this would indicate that 61

percent of the necessary investment to

achieve the highest 'standard level

would be made as part of historically

indicated investments. Thus, the FIM

negative impacts actually attributable to

the highest standard level should be

reduced by about 61 pereent. Even with

such a reduction, the negative impacts

ofstandards for furnaces remain

substantial, especially fQl' medium-size

firms. which have an unusual

deterioration in their debt to equity

ratio.

In addition to the above mentioned

quantified impacts on manufacturers. an

effect of a standard. as indicated

previotFIly, would be to require certain

investments to be made that might not

otherwise have been made. These

required investments may result in the

forgoing of certain other investments

which would be more beneficial to the

manufactUrer. Manufacturers generally

supported this conclusion. .

B. Economic Impact on Consumers.

DOE indicated in the April 1982

proposal that the price of level 3. gas

forced air indoor furnace. the least

expensive class offurnace, increases

$200 or over 50 percent to consumers.

The oll forced air indoor furnace. the

most prevalent class of oll furnace.

increases in price to the consumer by

approximately $30.00. or about 5.4

percent. See EnAD Table 4.20. The most

heavily impacted group, however, would

be lower income (under $7000 income)

households, where 0.81 percent will not

purchase new furnaces because of the

increased price resulting from

standards. In addition many low income

consumers rent housing in buildings

where heat is provided by the landlord

through large, commercial units. Thus,

these- re~ters would not receive any

positive bep.efit from standards, since

they would not be provided by a unit

'covered by sta.,dards. However. those

low income consumers who rent housing

in smaller buildings and who pay their

own utility bHls would be benefitted by

standards. since their utility bills would

be decreased. Based on both the

positive and negative impacts of

standards on consumers, DOE has

determined that the effect ofstandards

on lower income consumers is '

essentially neutral.

efficiency or its product) prototypiCaJ finn. The

negatlve Impacts suffered by 8 finn that had made

limil~ or no li1veslments In Improved product , effiCiency would still approach Qr be !bose renected by the FlM. ,.,-

C. Life-Cycle Cost., No specific

comments were received conCerning

DOB's determinations on the life-cycle

cost offurnaces. The LeC analysis

indicate-s that stand8;rd levels 3 and 4

have the lowest life-cycle cost'll,5ee

Supp. to BeAD, Appendix G. This

indicates that the standard level would

not cause any economic burden on the

"average" consumer. The NPV analysis indicates that if a

standard were adopted at level 4 there

would net present val~e of only

$108.4 DUrnOn in gas and 011 savings over

the period 1987-2028. If tlte net present

value were spread across the Nation

the resulting benefits would be less than

2 cents a year per household.

D. Energy Savings. As indicated

previously, the maximum savings

attributable to standards for furnances

under any of the analyses would be 0.17

Quads. .

E. Lessening ofUtility orPerformance

ofProducts. In the April 1982 proposal,

DOE established new classes of

products in order to assure that the

standards analyzed would not lessen

the existing utility or performance of

furnaces. As indicated above, however,

there is no assurance that future utility

or performance offurnaces would not be

lessened as a result of disincentives

caused by standards to investments in

energy-using new features.

F. Impact ofLessening Competition.

The Attorney General.has determined

that the absence of a Federal standard

for furnaces would have no impact on

competition.

G. Need to Save Energy. Because DOE

hll,S not proposed any standard for

electric fui'ances, only oil and gas would

b? saved by standards for furnaces. The

oll and gas savings from furnace

standards are very small, amounting to

0.17 Quads.

H. OtherFactors. The negative

impacts projected by the FIM on the

prototypical small manufacturer of

furnaces were presented above.

Although these impacts were not

substantial, DOE has indicated its belief

in the April 1982 proposal that the

methodology of the FIM would tend to

understate the negative impacts of

standards on small firms. D,OE received

no comments on this factor concerning

small furnace manufacture-rs, but no

commenter disputed,DOB's reasons for

concluding that the FIM methodology

tends to understate the negative impact

ofstandards on small manufacturers,

Consequently DOE concludes that the

negative impacts projected by the FIM

(as adjusted) understate the negative

.. For 011 furnaces. the savlnllS at the two highest

standards levels are approximately equal.

impact ofstandards on small

manufacturers of furnaces.

Weighing ofFactors

The benefits of a standard are

compared to the base case of no'

standards, that it would save energy and

have a positive net present value at

standard levels 3 and 4. The benefits

however. are minimal in amount. '

The burdens of a standard are (1) it

would adversely affect the financial

well-being of all firms making furnaces,

especially medium-sized firms; (2) it

could lessen the utility or performance

of this product in the future by creating

a disincentive to the development of

energy-using new features; and (3) it

could cause manufacturers of these

products to forgo investments that are

more beneficial to them.

In light of all factors, DOE has

determined that the burdens of an

efficiency standard for furnaces

outweigh the benefits.

d. Water Heaters

1. Technical Issues. NRDC submitted

the only comments which took

exception to DOE's engineering analysis

for water heaters. With respect to gas

water heaters, NRDC stated that DOE

did not consider certain technologies

currently in the prototype stage, such as .

prototype gas water heaters with

recovery efficiencies of 87-88 percent.

undergoing testing at the American Gas

Association Laboratories. Additionally

NRDC contended that DOE should hav~ considered inr,reased insulation .

thickness and intermittent ignition

devices in conjunction with stack

dampers.

DOE has considered NRDC's

comment concerning the inclusion of

prototype designs of gas water heaters

in its analysis, but has concluded tr.at

prototype versions of products that arp

not available in the marketplace and f~r which production cost estimates are not

available should not generally be

included as design options in the

Engineering Analysis. Because this is a

prototype. there.is no evidence that it

may be mass-produced efficiently. has

general market appeal or even whether

this high level of efficiency could be

obtained from a mass-produced model.

The "increased insulation thickness"

?esign option mentioned by NRDC was

mcluded in DOB's technical analysis for

gas water heaters although DOE used

the term "improved insulation" since

various grades of fiberglass were

evaluated along with polyurethane

foam. DOE's analysis ofthis design

option resulted in an efficiency versus

thermal resistivity curve which
 CAS-RM-78-110 COMMENT 10

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=== Federar Register / Vol. 48, No. 169 :I Tuesday, August 30, 1983 .1 Rules,and'.Regulations a

permitted DOE to predict the efficiency

improvement for any increase, in thermal

resistivity of insulating m~terial.

Therefore, DOE's analysis already

accounts for increasing the thermal

re~istivity of gas water heater insulation

up to the level mentioned by NRDC.

Moreover, any substantial change in the

dimensions of water heaters as a re'sult

of thicker insulation could effectively

preclude their installation in many

replacement situations where the area

for the water heater is constrained.

The design option of intermittent

ignition devices (lIDsJin conjunction

with stack dampers was rejected by

DOE in its analysis because all lIDs

require electrical power. Since

conventional gas water heaters do not

require an electrical hook-up to operate.,

a de'sign option such as this would

adversely affect the utility of gas water

heaters, i.e., the capability to function

without an electrical power supply. See

the discussion concerning separate

classes of gas kitchen ranges and ovens

at 47 FR 14447. Moreover, installation

costs would be substantially increased

where there is no electrical service in

the vicinity of a conventional gas water

heater in need of replacement.

NRDC's final comment in regard to

DOE's technical analysis Jor water

.heaters was that heat pump water

heaters should have been included in

the analysis and should serve as the

basis of a standard for electric water

heaters. DOE has not included heat

pump water heaters in its analysis

because the present DOE water heater

test procedure is not valid for heat pump

water heaters since it does not properly

account for the energy used to extract

heat from the surrounding air. Section

325(b) of the Act requires tha t no

standard shall be prescribed for a

product or class of product if no final

test procedure has been prescribed.

Therefore, space has been reserved for

the class of heat pump water heaters.

2. Significance ofEnergy Savings. The

table below reflects the energy savings

" projected by the ORNL Model

attributable to a standard for water

heaters at each of the three standard

levels considered over the period 1987-

1999.

Gas

Level 1--0.02 Quads

Level 2--0.06 Quads

Level 3--0.08 Quads

Electric

Levelt--O.18 Quads

Level 2--0.61 Quads

Level.3~1.18Quads 73

The maximum savings over the 13-

year p~rio4~f1.18 Quads of efectricity

amount~ to 0.073 Quads of natural ga~

and 0.031 Quads of oil. 74 Tm:s: is· the

equivalent o.f 15,918 mef per day or 28-'

percent ~of the 56,530 m'cfI3er day that

DOE considers signifi.cant. The greatest

oil savings is 1,135 barrels per day or

11.4 percent of the 10,000 barrels that

DOE considers significant.

The maximum savings attributable to ,

standards would constitute less than

0.25 percento{ the electricity used in the

Nation over the 13-year period. 75 This is

only 25, percent of the one percent

savings that DOE considers significant.

For the 'year 2000, the high~st level of

savings a ttributable to standards would

constitute only 4.9 percent of the energy

that would have been consumed by

electric water heaters in the absence of

standards and 1.69 percent of gas use,

which is less .than the 16.67 percent that

, DOE would deem significant. 76

On the basis of the above, DOE

concludes that standards for water

heaters would not result in a signific.ant.

conservation of energy. .

3.EcoDomicfusb[ication.A.

Economic Impact on Manufacturers. The

EnAD accompanying the Apri11982

proposal indicated that the per unit

increased cost to manufacturers to meet

the level 3 efficiency for water heJiters

ranges from $13.6"5 for a gas water

heater made by a large manufacturer to

$14.85 for an electric water heater made

by a medium-sized. manufacturer. EnAD,.

Tables 3.11.

None of these figures were .disputed in

th~ comments to the April 1982 pro-posal.

The FIM predicts that a prototyp~cal

medium-sized manufacturer would incur

a 30 percent increase in business risk at

i:J DpE ran two sensitivity analyses of the ORNL

Model, projectior,.s of energy savings. One

substituted a constant distortion rate for the

algorithm; the other substituted the historical rate of

increased efficiency for that derived by the ORNL

Model. At level 3. for electricity the

results were 2.00 Quads and 3.33 Quads.

respectively; for gas, at level 3 for both cases, no

energy would be saved. None of these amounts

would satisfy the first two tests of significance. 74This assumes that oil constitutes 2.65 percent

and gas 6.15 percent of the energy used to generate

electricity over this time period. These percentages·

are.the average '.of the projected proportions for the

years 1990 and 1995. In the absence of specific data

'for ea'ch ofthe years 1987-1999, DOE used these

years. See 1981 Annual Report to Congress, Volume

3: Forecasts, DOE/EIA 0173 (81)/3, February 1982.

75 Electricity used over the period 1987-1999 is

estimated to be 477.0 Quads. It is derived through

linear extrapolation of the original estiII}ate made

for the years 1985, 1990 and·2000. U.S. Department

of Energy. Julyl981. "The National Energy Policy

Plan," Table 1..

78 As indicated above, DOE ran two sensitivity

analyses ofthe leve14 savings. Under the constant

distortion rate the percentage savings are 8.95

percent. U.nder the historical trend analysis the

percentage savings projected would be 15.27

percent.

the efficie~cy levels thatweuld save $~ twohighe~t,amo~nts .of energy as'a' .••••.

~esult ·ofstandards. SeeSupp.to ~cAD~

Table A.4-1.By 19~~.Jtll:·e last.ye~r·ofthe

analysis), the .AM predicts that the

prototypical medium-sized manufacturer

will have :& 44p,ercenldecEease in

profjtabilUyas .coIIlpared,to the bas~

,case, while large and small

.manufacturers will have a 49 and 9

percent ;de.crease,r~spectiv.elY.See Id.,.

Table A.4-5..At level 3 the .prototypical

medium-sized firm',s.debtlequityratio

deteriorates by.approximately 32 "

percent, small manufacturers, 26

percent, and large manufa:cturers, 280

percent. See Id., Table A.4-8...

As indicated in the General

Discussion section, the FIM impacts are

fully ,accurate only to the extent that the

prototypical firm did not make

investments in improving appliance

efficiency as part of its hfstorically

indicated investments. 77 In the case of

water-heaters, in the base~ase by 1987 .

the ,ORNL Model.projects that the SWEF

win be 64.1 EF for electric and 55.5 EF

for gas w,ater heaters. From the EnAD

this would indicate that 19 percent ,Of

the. necessary investment to achieve the

highest standard [ev~lwouldbe made

as part of historically indicate.d

investments. Thus, th'e FIM negati,ve

impacts actual~y attributable to the

highest standard level should be

reduced by 19'percent. Even with such a

reduction, the negative impacts of.

standards for water heaters remain

substantial, with a substantial increase

in business 'risk formediurn-size firms

and a substantial deterioration in the

profitability. and debt/equity-:ratio for

large firms. .

In addition to the above mentioned

quantifiep'impacts on manufacturers, an

effect of a standard, as -indicated

previously, would be to req:uire certain

investments to be made that might not

otherwise have been made. These .

re'quired investments may result in the

foregoing of certain other ,investments

which ·wouldbemore beneficial to the

manufacturer. Manufacturers generally

.supported this conclusion. -

B. Economic Impact on Consumers. In

the April 1982 proposat DOE indicated

. that a level 3 standard for electric water

heater increases' the price to the

consumer by $31.30, while alevel 3 gas

water heater's price would be increased

by $29.90. These price increases are 19

perce~t and 15 percent greater, .

71This conclusion, however, applies only to the'

"average" (in terms of the shipment weighted

efficiency of its ·product) prototypical firm. The

negative impacts' suffered by a firm' that had made

limited or no inv~tment81n improved product :.

efficiency would still approach or be those· reflected

by the FIM. .
 CAS-RM-78-110 COMMENT 10

Federal Registerl Vol. 48. No. 169 I Tuesday, August 30, 1983 I Rules and Regulations . 39397

respectively, than CUITent prices. EnAD

Table 3.12. Despite these price

increases, DOE believes that the number

of water heater purchases forgone

would not be significant. See Supp. to

BeAD, Appendix J. The most heavily

impacted group would be lower income

households (less than $7,000 income).

However, even in this 8fOUP, less than one percent of those who would

purchase water beaters, win not

purchase them as a.result of the

increased prices attributable to

standards. See Ibid In addition, because

many lower income renters live in

dwellings which have commercial water

heaters, rather than resi~entia1-sized

water beaters, there would be no impact on the cost to these renters of hot water

as a result ofstandards. Accordingly,

DOE concludes that the effect of

standards for water beaters on lowerincome consumers is neutral.

C. Life-Cycle Cost. No specific . comments were received concerning

DOE's determinations on the life-cycle '

cost of water heaters. The LCC analysis

. indicates that tha possible standard

level with the lowest life cycle cost is

level 3. See Supp. to BeAD, Appendix G.

This indicates that the standard level

would not cause any economic burden

on the "average" consumer. The NPV analysis indicates that if a

standard were adopted at the highest

standard level there would be a net

present value of $2,385.8 million in gas

and electric savings over the period

1967-2Ol8.lfthe net present value were spread across the Nation, the resulting

benefits would be approximately 95

cents a year per household.

D. Energy Savings. As indicated

previously. the maximum savings

attributable to standards for water

heaters under any of the analyses would

be 1.26 Quads~

E. Lessening ofUtility orPerformance

ofProducts. In the April 2 proposal.

DOE established new classes of

products in order to assure that the

standards analyzed would not lessen

the existing utility or performance of

water heaters. However, there is no

assurance that the future utility or performance of water heaters would not

be reduced as a result of disincentives

caused by standards to investments in

energy-using new features.

F. Impact ofLesseningCompetition.

The Attol',:ley General has determined

that the absence of a Federal standard

for water heaters would have no impact

on competition.

G. Need to Save Energy. More energy

is used to power electric water heaters

than gas water heaters. The maximum

amount of electricity that would be

saved by. standards for water heaters

amounts to 0.25 percent of the electricity

used in the Nation during this period.

Similarly, the maximum gas savings

attributable to standards for water

heaters would account for about 0.006

percent of natural gas use during the same period,'"

H. OtherFactors. The negative

impacts projected by the FIM on the

prototypical small manufacturer of

water heaters were presented above.

Although these impacts were not

substantial. DOE has indicated its belief

in the Apri11982 proposal that the

methodology of the FIM would tend to

understate the negative impacts of

standards on small firms. DOE received .no comments in this area concerning

small water heater manufacturers. but

no commenter disputed DOE's reasons for concluding that the FJM methodology

tends to understate the negative effect

ofstandards on small manufacturers.

Consequently. DOE concludes that the

negative impacts projected by the F1M

(as adjusted) understate the negative

·impact ofstandards on small

manufacturers of water heaters.

Weighing.ofFactors

The benefits of a standard are,

compared to the base case of no standards. that it would save energy and

have a positive net present value. While

the benefits at the highest standard level

are not minimal. given the total energy

used for water heaters, the savings

benefits remain relatively small.

The burdens of a standard are: (1) It

would adversely affect the financial

well-being of medium-size firms making

water heaters by increasing those firms'

risk of doing business and decreasing

profitability; (2) it would negatively

impact the debt/equity ratio a,nd

decrease the profitability oflarge

!llanufacturers of water heaters; (3) it

could lessen the utility or performance

of this product in the ,future by creating

a disincentive to the development of

energy-using new features; and (4) it

could cause manufacturers ofthese

products to forgo investments that are

more beneficial to them.

light of all of these factors DOE has

determined that the burdens of an

efficiency standard for water heaters

outweigh the benefits.

e. Room AirConditioners

1. TechnicalIssues. GE commented

that DOE bas overlooked the utilitarian

aspects that a voltage break would

1.Natural gas used over the period 19117-19991a

eslimated to be 241.8 Quads. Ilia derived through

Ilnear extrapolation of the original estimate made

for the years 1ll85. 1990 and 2000. U.s. Department . ofEnetllY.July 1llll1. "The National Energy Policy

Plan.» Table 1.

provide in the 8,000-14,000 Btu per hour

product class. Itis within this cooling

capacity range that the power supply

requirement steps-up from 115 volts to

230 volts. GE noted that a cooling

capacity of14.000 Btu per hour C8Iwot

be achieved for room air conditioners

that operate at 115 volts.

DOE bas already determined in its

engineering analysis that the efficiency

ofroom air conditioners is not

significantly affected by voltage.

Therefore. DOE has made no changes to

the product classes for room air

conditioners in response to this

comment.

GE also took exception to DOE's

position that there are no truly portable

room air conditioners. GE cotnmented

that while the portability criteria cited

by DOE can be considered a valid·

general defini~on, portability is best

determined by consumer use patterrts.

GE referred to its "Carry-Cool" line as

winning wide acceptance by consumers due to its relatively light weight, unique

suitcase configuration, and ease of

installation and removal. GE expressed

concern that if energy efficiency

stendards were to be established for room air conditioners then, depending

on the efficiency level selected to apply

to the lower cooling capacity ranges. . e.g., 4000 to 6000Btu per hour,

manufacturers could be forced to

abandon their current smaller. lighter

weight case sizes and use the largest case size within the product class in

order to accommodate the larger COUll

that would be necessary to achieve

higher efficiencies. Moreover, the larger

coils themselves would add weight.

According to GE. such a change would

adversely affect consumer utility. DOE

has reviewed the GE submission and

concludes that its points are valid as to

the possible effect ofstandards on the

portability ofsome room air

conditioners. See infra.

Both GE and Whirlpool Corporation

commented that DOE's use of computer

simulation to determine the design

parameters associated with the four

levels of efficiency investigation in each

product class led to erroneous results.

GE and Whirlpool agreed that DOE's

computer simulation underestimated the

reql$'ed heat exchanger coil length

associated with achieving higher

efficiency levels. Whirlpool remarked

that DOE's computersimulation

overestimates heat exchanger coll air

flow parameters. In comparing one ofits

current models which matches the 8000

Btu per hour example model at Level 3

efficiency (8.8 EER), Whirlpool found

that its model has 30-50 percent more

heat e<'tchanger coil at aboJlt the same
 CAS-RM-78-110 COMMENT 10

39398 Federal Register I Vol. 48, No. 169 I Tuesday, August 30, 1983 I Rules and Regulations

air flow as the version. GE said tb.at

using its computer simulation technique

and actual production model

information, it calculated that the DOE

estimates of required coi11ength are

grossly underestimated. . . DOE agrees that differences in coil

length between different designs of

room air conditioners of equal capacity

and efficiency can occur. There are a

number of factors which influence coil

length in a room air conditioner design:

coil fin type and spacing, compressor

capacity and efficiency, air flow rates,

fan, blower and fan motor efficiencies,

to name a few. However, nothL,g in the

comments made by GE or Whirlpool

was sufficiently detailed for DOE to

dra\tva conclusion that the computer

simulation technique it employed was

faulty.

Both GE and Whirlpool also

commented that DOE did not disclose

the co~pressor specifications and

performance data used in its analysis

leaving them unable to comment on the

desion cost and efficiency improvement

proj~ctions that DOE associated with

this design option. The compressor

specifications and peform!ince data

used by DOE were taken directly from

the 1980 Tecumseh product catalog.

AHA~J, Whirlpool and .Edison

Products Company commented that

reduced dehumidification capacity

occurs as room air conditioner EERs

increase beyond 8.0 They cited

dehumidification performance of room

air conditioners as a consumer utility

consideration. DOE used latent heat

removal relations based on standard

industry data for heat exchangers in the

room air conditioner analysis. Latent

heat removal rates in excess of 20

percent were maintained throughout the

analysis as recomrnended by

manufacturers during the 1980 comment

period. DOE has not changed the latent

heat removal values in the present

analysis.

Whirlpool commented that while it is

accepted engineering practice to derate

COIDnressors to develop an air

conditioner line with desired efficiency

and capacity values, it is not always

possible to derate to any pumping

capacity. Since Whirlpool did not

specifically comment that the derated

values used in the engineering analysis

cannot be attained, no changes have

been made to the analysis regarding his

comment.

NRDC commented that the DOE

engineering analysis for room air

conditioners does not consider currently

marketed units which achieve higher

efficiencies than those analyzed by

DOE. DOE acknowledges the existence

of such high efficiency units, and DOE

did, in fact, consider the technologies

incorporated in these units. However,

because of the manner in which the

engineering analysis was conducted, it

did not necessarily yield efficiency

values as high as can be found in the

marketplace. One reason is that

separate analyses were made for each·

class of room air· conditioners and the

largest capacity unit in each class was

selected for assessing efficiency

improvements. .ft~s a result, the potential

for increasing the cabinet volume of

units in each class to accommodate

larger coils was limited to the increase

that could be made to the largest units in

L"'1e class such that these units v~ould

still fit in exisiting \tvi~do\l'l sizes or

existing air conditioner sleeves. In

addition, DOE imposed a minimum

dehumidification performance

requirement in its fu"1alysis in terms of a

latent heat removal rate of greater than

20 percent. These parameters largely

governed the highest efficiency levels

which DOE analyzed. The available

room air conditioner models with EERs

in excess of the highest efficiency levels

analyzed by DOE generally are the

smaller capacity units within a product

class housed in the same size cabinet as

the larger capacity units in the class to

accommodate their larger coils. Also,

these units have low latent heat removal

rates, perhaps lower than DOE's

performance criteria. DOE considers the

approach of its engineering analysis for

room air conditioners appropriate for

assessing potential efficiency

improvements which do not adversely

affect product utility. f'Jo changes in this

-analysis have been made in response to

NRDC's comment.

2. Signlficance ofEnergy Savings. The

table below reflects the energy savings

projected by the ORNL Model

attributable to a standard for room air

conditioners at each of the standard

levels considered over the period 1987-

2001..

Level 1--0.25 Quads

Level 2-0.31 Quads

Level 3-0.37 Quads

Level 4-0.61 Quads 79

As indicated above, to determine the- oil

and gas savings that would result from

electricity savings attributable to

standards for non-seasonal appliances,

DOE took the average of the national

proportions of oil and gas projected for

the years 1990 and 1995. As explained in

79 DOE ran two sensitivity analyses of the ORNL

Model projections of energy savings. One

substituted a constant distortion rate for the

algorithm: the other substituied the historical rate of

increased efficiency for that derived by the ORNL

Model. At ieve14 the results were 0.63 Quads and

0.29 Quads, respectively. Neither amounts would

satisfy the first tl//O tests of signifi~ance.

the April 1982 proposal, however, see 47 

FR 14450, because air conditioning is

used most iIi the SUInmer and because

gas and oil are used in the generation of

electricity in substantially different

percentages in the summer than they are

in the winter or on average over the

year, DOE altered the percentages used

for deriving oil and gas savings for nonseasonal electrical appliances. The

annual use projections were increased

or decreased, as appropria te, by the

current percentage variation of the

summer use of oil and gas to generate

electricity from the annual use./d. No

commenter criticized this methodology

or data, as far as it went. A few

commenters, however, suggested that

because air conditioning tended to be

used at peak load periods and because

oil and gas tended to be used as fuel to

meet peak demand, even a summer I

average would understate actual

savings of oil and gas attributable to

standards for air conditioning

equipment~ These commenters did not

submit data to support their claims, and

DOE is unaware of any data series that

would enable it to be more specific in

assessing the oil and gas used to 

generate the electricity used by air

conditioning equipment.

.Using the above described

methodology, DOE projects that

standards for room air conditioners

would not save more than 438 Bpd of oil

and 7750 mef per day of natural gas. so

I'his is only 4 and 14 percent,

respectively, of the amount DOE deems

significant.

The greatest amount of savings would

constitute only 0.10 percent of national

electricity use over the average life of

room air canditioners beginning in

1987.81 This is only 10 percent of the one

percent savings that DOE deems

significant.

For the year 2002, the highest level of

savings attributable to standards for

room air conditioners would constitute

less than 13 percent of the energy used

by room air conditioners in the absence

80 In these computations, DOE has reduced the

percentage of oil used to generate electricity by 14

percent and increased the percentage of gas by 16

percent from the -average of the annual percentages

for the years 1990 and 1995, with the result that oil

represents 2.28, percent and gas 7.13 percent of the

projected electricity savings. These percentage

changes are derived from the actual percentage

deviations in 1982. See Electric Power Monthly.

DOE/EIA-0226. 

81 Electricity used over the period 1987-2001 is

estimated to be 566 Qua-ds. It is derived through

linear extrapolation of the estimates made for the

years 1985, 1990, 2000. U.S. Department of Energy.

July 1981. "The National Energy Policy Plan" Table

1.
 CAS-RM-78-110 COMMENT 10

Federal Register I Vol. 48, No. 169 I Tuesday, August 30, 1983 I Rules and Regulations n

• of standards, less than the amount DOE

deems significant.82

On the basis of the above, DOE

concludes that standards for room air

conditioners would not result in a

significant conservation of energy.

3. Economic Justification. A.

Economic Impact on Manufacturers.

The EnAD accompanying the April 1982

proposal indicated that the per unit

increased cost to a manufacturer to meet

the level 4 efficiency for the most

prevalent class of room air

conditioner-the below 8000 Btu/hr with

outdoor side louvers, with 44 percent of

the market-was a mere $6.13, or less

than 5 percent. However, all the rest of

the classes of room air conditioners,

making up 56 percent of the market, had

significantly increased first costs,

ranging from 15 to 50 percent increases.

f\Jso, it is noteworthy that medium-sized

manufacturers had increased costs 15 to

20 percent higher than the large firms.

Table 9.16 and Table 9.17.

None of tp.ese figures were disputed in

the comments on the April 1982

proposal. .

The negative effe'cts of these

increased costs on medium-sized

manufacturers is reflected in the FIM. It

shows that the risk of not making a

profit increases as a result of standards

by 15 percent for levels 1-3, and' by 20

percent at level 4. The FIM also

indicates that profitability for all sizes of

firms decreases under all standards

levels compared to the base case. By

199i (the last year of analysis) mediumsized firms are no longer profitable at

any standard level. In 1991 profitability

for both large and small firms under

level 4 decreases from the base case by

11 percent. The debt/equity ratio of

large firms deteriorates' 70 percent at

level 3, while the debt/equity ratio of

medium-size firms, already at very high

levels, deteriorates by over 30 percent at

leve\s 2 and 3.

As indicated in the General

Discussion section, the FIM impacts are

fully accurate only to the extent that the

prototypical firm did not make

investments in improving appliance

efficiency as part of its historically

indicated investments. 83 In the case of

82 As indicated above, DOE ran two sensitivity

analyses of the level 4 savings. Under the constant

distortion rate the percentage savings are 14

percent. Under the historical trend analysis the

percentage savings projected would ~~ 5 percent.

83This conclusion, however, applies only to the

"average" (in terms of the shipment weighted

efficiency of its product) prototypical firm. The

negative impacts suffered by a firm that had made

limited or no investments in improved product

efficiency would still approach or be those reflected

by the FIM.

room air conditioners, in the base case

by 1987 the ORNL Model projects that

the SWEF will be 7.23 SEER. From the

EnAD this would indicate that 72

percent of the necessary investment to

achieve the highest sJandard level

\vould be made as part of historically

indicated investments. Thus, the FIM

negative impacts actually attributable to

the highest standard level should be

reduced by about 72 percent. Even with

such a reduction, the negative impacts

of standards for room air conditioners

remain substantial for medium-sized

firms.

In addition to the above mentioned

quantified impacts on manufacturers, an

'-effect of a standard, as indicated

previously, would b~ to require certain

investments to be made that might not

otherwise have been made. These

required investments may result in the.

forgoing of certain other investments

which would be more beneficial to the

manufacturer. Manufacturers generally

supported this conclusion.

B. Economic Impact on Consumers. In

the April 1982 proposal DOE indicated

that at a level 4 standard, while the most

prevalent class of room air conditioner

increased in price only $18, the next two

most prevalent classes increased in

price more than 25 percent. Indeed, all

the remaining classes, making up 56

percent of the market, increased in price

28 percent. Notwithstanding these price

increases, DOE believes the number of

room air conditioner purchases forgone

will generally be insignificant. See

Supplement. The most heavily impacted

group, however, would be lower income

(less than $7,000 income) households,

where over one percent of those who

would purchase air conditioners will

forgo purchases of room air conditioners

because of their increased price·as a

result of standards. Persons who forgo

purchases of new room air conditioners

are likely to make do with older and

more inefficient room air conditioners or

to have to go without. Because renters

most likely have to purchase their own

room air conditioners, lower income

renters generally would not suffer from

landlords purchasing low efficiency

room air conditioners. Standards,

accordingly, would not particularly

benefit renters. Thus, while ,the

percentage and absolute number of

lower income persons,negatively

impacted by standards for room air

conditioners is small, so also is the

number of lower income renters who

would be positively benefited. On this

basis, DOE concludes that the effect of

standards for room air conditioners on

lower inc9me persons is essentially

neutral.

3939

c. Life Cycle Cost. A standard set at

level 4 would require efficiencies for

four of the six product classes to be at 

level higher than the average consume

life cycle cost minimum. That is, if a

standard at level 4 were adopted, the

most cost-effective room air conditione

for the average consumer in four of the

six product classes would be banned

from the market. A level 4 standard

would actually increase the life cycle

cost to the average consumer of three o

the product classes compared to the

1987 SWEF in the absence of standard

As indicated in the April 1982

proposal, DOE considers the increasin

of life cycle costs to consumers and th

banning of the most cost-effective

products from the market to be

substantial negative burdens.

Comrnenters either supported or did n

contest this conclusion. Accordingly,

DOE considers that a level 4 standard

for room air conditioners would cause 

substantial burden by its effect on life

cycle costs for large numbers of

consumers.

The NPV for standards increases wi

the strlngency of the standard, from $3

million to $645 million over the period

1987-2020. Spread over the Nation's 80

million households, this would equate 

at most less than 24 cents per househo

per year.

D. Energy Savings. As indicated

above, the maximum savings

attributable to standards would be 0.6

Quads of electricity.

E. Lessening of Utility or Performan

ofProducts. In the Apri11982 proposa

DOE explained that despite its best

efforts to assure that the standards

analyzed would not lessen the existin

utility or performance of room air

conditioners, DOE could· not assure th

the future utility or performance of ro

air conditioners would not be lessene

as a result of disincentives caused by

standards to investments in new,

energy-using features. Several

commenters supported this conclusi.o

but, perhaps more importantly, some

indicated that some of the standard

levels analyzed would decrease the

utility of some existing room air

conditioners. Specifically, GE

maintained that in the class of room 

conditioners with side louvers with

capacity at or below 8,000 BTU/hr. th

necessary changes to achieve the

standards levels would make otherw

portable room air conditioners too

heavy or Qulky to be portable. Above

the technical discussion, DOE conclu

that this comment had merit.

Consequently, DOE has determined t

an energy efficiency standard for roo

air conditioners would cause a decre
 CAS-RM-78-110 COMMENT 10

Federal Register I Vol. '48, No. 169 / Tuesday, August 30, 1983 / Rules and Regulations

•

55 Lower dehumidification may well be

appropriate in low humidity areas, e.g., New

Mexico, Arizona. etc.

their high efficiency at the expense of

dehumidification and consequently do

not achieve 20 percent dehumidification.

DOE indicated in the EnAD that it

•believed that dehumidification below 20

percent represents a significant loss in

product utility in many clirnatic

conditions, and in some areas. (Le., areas

with high humidity and temperatures)

would be totally unacceptable. This

conclusion was generally supported by

the commenters that addressed it.

Consequently, DOE has determined that

any national standard should provide

for at least a 20 percent

dehumidification. 85 Other factors relate

to aspects of the DOE test procedure for

CACs. For example, the test procedures

provide for testing CACs that have or do

not have an integral fan (separate from

the furnace) as part of the CAe unit.

Where the CAe does not have an

integral fan, the DOE test procedure

assigns an electricity consumption

factor for the separate furnace fan. If,

however. the fan is integral to th-e CAG,

it is to be specifically tested under the

DOE procedure. Thus, a firm can obtain

a higher SEER rating for the same CAe

by substituting its own integral fan with

a higher efficiency than the assumed •

DOE test procedure rating for a separate

furnace fan. It would be improper,

however, to set a standard premised on

all CACs having their own fans, because

such units YJould not be compatible with

the majority of installations, which

involve furnaces with their own fans.

Another example of the effect of the

DOE test procedure on CAC SEER levels

is the degradation coefficient. Under the

DOE test procedure. a degradation

coefficient-(the measure of the efficiency

loss due to the cycling of the unit) of 0.25

is assigned, unless a manufacturer

conducts certain additional tests, in

which case the actual degradation factor

may be used. Because of their cost and

complexity these additional tests have

always been voluntary. The same GAC,

however, might have its SEER increased

10 percent simply as a result of

measuring its degradation factor rather

than using the assumed degradation

factor. DOE believes it would be

inappropriate to set a national standard

that would in effect require all

manufacturers to conduct these

additional tests.

While the above factors are indicative

of some of the problems that would

attend a national standard at such a

level of efficiency, DOE has

nevertheless updated the cost-efficiency

84 In the April 1982 propo8al DOE indicated that it

had not specifically analyzed the class of room air

conditioners that are reverse cycle air conditioners.

Nevertheless. DOE indicated its belief that the

burdens of a standard for that class would outweigh

its benefits. No commenter indicated disagreement

with that conclusion. Consequently, for the reasons

stated in the April 1982 proposal, DOE concludes

that a standard would not be economically justified

for the class of reverse cycle room air conditioners.

The burdens of any standard for room

air conditioners are: (1) It will have a

negative impact on manufacturers'

profitability, which is especially severe

. on medium-size manufacturers; (2) it

will create an inceased business risk to

medium-size firms; (3) it will increase

substantially the debt/equity ratio of

large and medium-size firms; (4) it would

r~duce the utility of a large portion of

the most popular class of room air

conditioner by effectively making it no

longer portable; (5) it would create a risk

to the utility or performance of room air

conditioners in the future by creating a

. disincentive to the development of new,

energy-using features; and (6) it would

likely cause investment resources by

manufacturers of these products to be

allocated in a manner that is not the

most appropriate for the manufacturer.

At level 4 the standard would impose

substantial additional burdens,

prohibiting the mo~t cost-effective room,

air canditioner for the average consumer

in four of the six product classes and

actually increasing the life cycle cost to

the average consumer of three of the

product classes.

In light of all the factors, on balance,

DOE concludes the burdens of an

efficiency standard for room air

conditioners outweigh the benefits. 84

f Central Air Conditioners

1. Technical Issues. The NRDC and

some other commenters criticized DOE's

analysis of the effect of possible

standards for CACs because the highest

standard level analyzed for some

classes of CACs is lower than the

efficiencies claimed for several models

of similar sized CACs presently in the

marketplace. As indicated in the

General Discussion section, this is

primarily the result of changes in the

marketplace since the original

engineering analysis was prepared, and

the inability in the time since the April

1982 proposal to provide full Bcost book"

information on these models to enable -

full analysis of a potential standard at

such a level.

With respect to CAGs, however, there

are additional factors that make the

SEER level claimed by some

manufacturers in currently marketed

CACs inappropriate as a national

standard. For example, some currently

marketed high efficiency units obtain

39400 _

in utility for small, portable room air

conditioners, which, constitute a very

large fraction of the entire room air

conditioner market.

F. Impact ofLessening Competition.

The Attorney General has determined

that the absence of a Federal standard

for room air conditioners would have no

impact on competition.

G. Need to SQv·e Energy. Room air

conditioners use electricity exclusively

as their energy source. The electricity

that would be saved by standards for

room air conditioners would be

concentrated in certain parts of the

Nation and ,viII be concentrated during

summer peak load periods. While peak

load savings are generally more

valuable to utilities than normal load

savings, the value of the savings

_depends greatly on the nature of the

particular utility's peak load and

consequently is highly regional in

character. Thus, although savings of

electricity associated with air

conditioners are potentially more

valuable than other forms of electricity

savings, the need for those savings is

more regional specific than is the case

for other electricity savings.

H. Other Factors. The significant

negative impacts projected by the FIM

on the prototypical small manufacturer

of room air conditioners were presented

above. Only with respect to profitability

"vas there any significant negative

impact In the April 1982 proposal,

however, DOE indicated its belief that

the methodology of the FIM would tend

to understate the negative impacts of

standards on small firms. No comments

were received specific to small room air

conditioner manufacturers, but no

commenter disputed DOE's reasons for

concluding that the FIM methodology

tends to understate the negative effect

of standards on small manufacturers.

Consequently, DOE concludes that the

negative impacts projected by the FIM

(as adjusted) understate the negative

impact of standards on small

manufacturers of room air conditioners.

Weighing ofFactors

The benefits of a standard for room

air conditioners are, compared to the

base case of no standards, that it would

save energy and have a positive net

present value. These benefits, however,

are Ininimal in amount even at the

strictest standard level. The benefits are

even less at lower levels of mandated

efficiency. While the electricity saved

would generally be summer peak load

and thereby more valuable than base

load savings. these savings and the

value of the peak load savings will be

regional in nature, if not highly

localized, rather than national in nature.
 CAS-RM-78-110 COMMENT 10

Federal Register I Vol. ,48, No. 169 I Tues~ay, August 30, 1983 I Rules and Regulations

•

.

r •

relationships in the EnAD to the extent

possible in light of newly marketed

products.

Accordingly, today's engineering

analysis identifies units with two

additional design options-two-speed

compressors and all-aluminum heat

exchangers. Today's engineering

analysis also includes lower

degradation coefficients for these two

design options. The Supplement

describes these additional design

options. These changes lead to a higher

efficiency level in the engineering

analysis, which approaches the highest

reports of efficiency in the marketplace.

On the basis of this change in the

engineering analysis, a new costefficiency point was added to the

determination of the cost~efficiency

curves of ORNL Model, thereby

improving the accuracy of those curves

and, consequently, of the Model's CAC

life cycle cost curves. The NRDC also disputed the validity

of the cost-efficiency relationship

reflected in the CAC standard level 4

(efficiency level 6 in Table 8.14 of the

EnAd), noting that existing CACs in the

marketplace with efficiencies at or

above those of the CAC standard level 4

were available at prices well below

those indicated in the EnAD. See NRDC,

No. 2121, at 34-35. I~ light of the changes

made to the engineering analysis

described above, DOE believes there is

substantial merit to NRDC's comment.

j\"ccordingly, DOE deleted the Table

8.14's level 6 cost-efficiency data point

from the determination of the ORNL

Model's cost-efficiency curve for

CACs.86

A number of commenters indicated

that both DOE's national average CAC

capacity and DOE's national average

annual hours of CAC use were

substantially too high. With regard to

the average capacity, the ARI submitted

comprehensive data concerning

shipment weighted average capacities of

CACs. The data indicated that the

average capacity of CACs sold in the

last few years has decreased.

Accordingly, DOE has reduced the

capacities in, the analysis from 42,000

86 While standard level 4 remains at the efficiency

equal to that represented by the EnAD's level 6 for

CACs, the cost to achieve that efficiency is less than

that reflected in the EnAD's level 6. This reduced

cost/price is reflected in both the ORNL Model's

.outputs and the Life Cycle Cost Analysis. It is not

reflected in the FIM analysis, because DOE does, not

have sufficient data to create a full Ucost. book" for

a new design option at this efficiency level. DOE

does not believe, however, that the change in cost

would be substantial enough to affect the

conclusions of the FIM. It should be noted that a

lower cost per se does not even necessarily mean

that the negative impacts in the FIM would be

reduced at all.

Btu/hr. to 39,000 Btu/hr. to reflect these

changes.

Several manufacturers provided

average annual hours of use for CACs

that supported their contention that the

usage rate in the ORNL Model was '

overstated. Specifically, some submitted

field test data from various locations

reporting compressor run times that

were substantially less than would be

indicated by DOE's assumed

distribution of cooling load hours, see 10

CFR Part 430, Subpart B, App. M. § 6.1.3.

Other commenters submitted usage data

they used in assessing proper sizing

recommendations for purchasers of this

equipment. Finally, incidental usage

rates indicated by some States were

lower than what DOE's distribution

would predict. Indeed, all of the

evidence available indicated that the

- 1tOOO hours average annual use'for

CACs was substantially overstated.

Although there was no clear consensus

Jor the average hours of use of CACs,

there was general agreement that the

value should be less than 1,000 hours/

year.

It should be noted that there is a

nonstochastic relationship between

CAC capacities and hours ot use. The

product of average capacIty and average

hours of use will always underestimate

the national average cooling load and,

thereby, always underestimate the

national energy consumption. This is

due to the general tendency that higher

than average capacities are associated

with higher than average hours of use.

That is, it is likely that CAGs installed in

the South will not only have higher than

average capacities but also longer than

average hours of use. This frustrates any

attempt to determine a comprehensive

national average hours of use value by

simply averaging operating hours data.

Accordingly, DOE has determined that

the appropriate number of hours of

operation to be used in the ORNL M<;>del

is not the national average but rather

the number of hours of use that when

coupled with the national average

capacity, yields an energy consumption

estimate that is consistent with the

national energy consumption

attributable to GACs reported by the

Edison Electric Institute. Given national

average capacity, national average

efficiency, total households having

CAGs, and total national CAC energy

consumption and solving for the usage

yields a value approximately equal to

750 hours/year. Accordingly, the

estimates of national energy use, energy

savings, and net present value as

determined by the ORNL Model, and the'

life cycle cost analysis reflect the

change in hours of use from 1,000 

to 750 hours.

The effect on the outputs of the 

Model as a result of thes.e change

capacity and hours of operatio'n i

su1?stantial and complicated. Mos

directly, the unit energy consump

GACs in both the base and stand

cases is substantially decreased. 

has the effect of reducing the abs

energy savings attributable to

standards.s1 On the other hand, th

change in unit energy consumptio

resulting from usage and capacity

changes has the effect of changin

dramatically the CAG life cycle c

minimum in the ORNL Model.ss

Specifically, it is reduc~d to a lev

below all of the standards levels.

Because the ORNL Model's mark

penetration algorithm, see supra,

projects that, with higher energy 

marketplace efficiencies approac

do not reach) the life cycle cost

minimum, the effect of the reduce

cycle cost minimum is to reduce

dramatically the projections of

increased efficiencies in the base 

Moreover, because the standard 

are substantially higher than the 

cycle cost minimum and because 

base case rational consumers wo

knowingly purchase CACs at eff

levels higher than the life cycle c

.minimum, the market-based incr

efficiency would be capped at a 

well below the standard levels. T

standards result in substantial en

savings relative to the base case, 

the absolute savings are not

correspondingly large. Consequen

percentage decrease in energy us

standards compared to the base 

high. See infra.

2. Significance ofE.nergy Savin

the April 1982 proposal, DOE ide

three aspects of the inputs to the 

Model peculiar to CACs that all 

to exaggerate the energy savings

attributable to standards. These 

were: optimistic estimates of rea

income growth, counting heat pu

CACs, and counting all central a

conditioning in multi-family hou

CACs subject to the consumer a

program. See 47 FR 14449-50. Th

comments on the proposal suppo

DOE's conclusion that these asp

indeed exaggerate the savings

attributable to standards. In the 

1982 proposal, however, DOE ha

unable to quantify the effect of a

8'Z Another cause of the decrease in abs

energy savings is the elimination of the c

heat pumps as CACs.

88 A similar effect can be seen in the tw

capacity classes of CAC as reflected in th

cost analysis.
 CAS-RM-78-110 COMMENT 10

39402 Federal· Register j Vol. 48, No. 169 / Tuesday, August 30, 1983 / Rules and Regulations ..

these aspects, and consequently had

ignored them in its measurement of

energy savings. For today's rule DOE was able to distinguish heat pumps from

CACs in the ORNL Model, which has

the effect of reducing the number of

CACs in both the base and standards

cases. The estimate of real income

growth has not been changed, because

insufficient evidence was provided in

the rulemaking to justify a change.

Finally, DOE did not distinguish

consumer CAGs subject to this

·rulemaking from large-scale central air

conditioning equipment in multi-family

buildings. By overcounting the number

of CACs, the Model overstates the

aggregate energy saved attributable to

standards.89

The table below reflects the energy

savings projected by the ORNL Model

attributable to a standard for CAGs at

each of the standard levels considered

over the period 1987-1998.

Level 1--0.76 Quads

Level 2--0.92 Quads L~ve13-1.07 Quads

Level 4-1.23 Quads 80

As indicated. above, to determine the oil

and gas savings that would result from

electricity savings attributable to

standards for non-seasonal appliances,

DOE took the average of the national

proportions of oil and gas projected for

the years 1990 and 1995. As explained 'in

the April 1982 proposal, however, see 47

FR 14450, because air conditioning is

used most in the summer and because aas and oil are used "in the generation of

~lectricity in substantially different.

percentages in the summer than they are .in the winter or on average over the

year, DOE altered the percentages used

for deriving oil and gas savings for Ifonseasonal electrical appliances. The

annual use projections were increased or decreased, as appropriate, by the

current percentage variation of the summer use of oil and gas to generate

electricity from the annual use. Id. No

commenter critized this methodology or data, as far as it went. A few .

commenters, hOV'lever, suggested that

because air conditioning tended to be

used at peak load periods and because

oil and gas tended to be used as fuel to

meet peak demand, even a summer

89 Over 1 million households live in buildings with

5 or more units with a central air conditioning

system for the entire building. See Housing

Characteristics, 1980, DOE/EIA-D314 (1982). at

Table 19.

" DOE ran two sensitivity analyses of the ORNL

Model projections of energy savings. One

substituted a constant distortion rate for the

algorithm: the other substituted the historical rate of

increased efficiency for that derived by the ORNL

Model. At level 4 the results 1.21 Quads and 0.80

Quads. respectively. Neithe~ amounts would satisfy

the firs~ two tests of significance.'

average would understate actual

savings of oil and gas· attributable to

standards for air condit~oning

equipment. These commenters did not

submit data to support their claims, and

DOE is unaware of any data series that

would enable it to be more specific in

assessing the oil arid gas used to

generate the electricity used by air

condilioning equipment. However, it

should be noted that the measurement

of peak load savings on a national basis

has little efficacy. Although many

utilities are summer peaking,.CACs

cannot be assumed to always be the

major contribution to this increase in

energy use. Room air conditioners and

additional consumption in the

commercial and industrial sector, may

also be major factors in such an

increase, depending upon the utility.

Utilities are generally not now able to

disaggregate these other uses from

residential CAe use to determine what

proportion, if any, of the peak load is

attributable to residential CACs.

In addition, each utility has very

different characteristics and needs.

Some utilities, such as those in some

Southern States peak both in the winter

and the summer, because of the use of

electric resistance heating in the winter.

Furthermore, because some utilities

have excess capacity which is relatively

cheap, there is very little, if any value, in

not using that capacity. Accordingly,

although DOE recognizes that the saving

of peak load electricity can be very

valuable to some utilities, DOE cannot

generalize and state that such a saving

would in fact assist all utilities. .

Using the above described

methodology, DOE projects that

standards would save at most only 1,101

Bpd of oil and 19,468 mcf per day of

natural gas. 91 This is only 11 and 34

percent, respectively, of the amount

DOE deems significant.

The greatest amount of savings would

constitute only 0.28 percent of national

electricity use over the average life of

CAGs beginning in 1987.92 This is only

91 In these computations. DOE has reduced the

percentage of oil used to generate electricity by 14

percent and increased the percentage of gas by 16

percent from the average of the annual percentages

for the years 1990 and 1995, see note 80, supra, with

the result that oil represents 2.28 percent and gas

7.13 percent of the projected electricity savings.

These percentage changes are derived from the

actual percentage deviations in 1982. See Electric

Power Monthly, DOE/EIA-{)226.

82 Electricity used over the period 1987-1998 is

estimated to be 434.1 Quads. It is derived through

linear extrapolation of the estimate made for the

years 1985, 1990. and 2000. U.S. Department of

Energy, July 1981. ~'The National Energy Policy

Plan:' Table 1.

28 percent of the one percent savings

that DOE.deems significant.

In the year 1999,.however, the ORNL

Model projects that a standard for CACs

would result in the following percentage

decreases in energy consumption:

Level 1-15.73

Level--2~19.29

Level 3....;....22.57

Level 4-26.27 93

Thus, energy efficiency standards for

CAGs set at levels 2, 3 or 4 meet DOE's

test of significant energy savings.

However, as discussed above, the

energy savings may be either higher or

lower than the savings projected by the

ORNL model.

In addition, the absolute energy

savings attributable to GACs could be

further reduced if DOE found that the

usage elasticities used in the ORNL

model were much greater than

anticipated. The Model currently

assumes that consumers will use CACs

slightly more, as efficiencies for CAGs

increase.94 .However, some studies

indicate that consumers might greatly

increase their usage of CACs as

efficiencies increase, so that any

reduction in energy use attributable to

higher efficiency units could be offset by

·this higher usage.

Moreover, the ORNL model does not

fully explore the impact of higher

efficiency CACs on the overall thermal

integrity of a housing unit and the

efficiencies of other appliances, such as

furnaces, within the unit. It has been

suggested that the purchase of more

efficient CACs could result in lower

investments in measures such as

insulation or storm windows, which

would improve the thermOal integrity of a

house, or in more efficient furnaces. If

GACs did have such an impact on these

investment decisions, little if any real

energy would be saved by requiring a

standard for CACs.

3. Economic Justification. A. Impact

on Manufacturers. In the April 1982 - proposal, DOE indicated that the per

unit increased cost to manufacturers to.

meet the highest standard level of

efficiency was substantial. See 47 FR

14451. As indicated above, however,

DOE has altered the cost-efficiency

curve in a manner that has the effect of

reducing the cost to a manufacturer of

93 As indicated above, DOE ran two sensitivity

analyses of the level 4 savings. Under the constant

distoration rate the percentage savings projected

would be 26024: under the historical trend analysis

the percentage savings projected would be 16.53.

g ... The ORNL model includes a value of.2 as the

usage elasticity for CACs. This means that for every

unit of energy saved by more efficient equipment•.2

additional units of energy will be' consumed due to

increased usage.
 CAS-RM-78-110 COMMENT 10

Federal Register / Vol. 48, No. 169 / tuesday, August 30, 1983 / Rules and RegulatIons d " .

•

--.

, , Ita

meeting a level 4 standard compared to

what was indicated in the April 1982"

proposal. Nevertheless, the increased

costs to manufacturers to meet level 4

\vould remain substantial. To meet even

a level 3 standard for the most popular

class, the 39,000 BTU and under split

system class, as compared to the 1978

base line unit would require over $150

per unit in'increased costs to a large

manufacturer of CACs. For this same

class, to meet a level 2 standard, the

increased cost to the manufacturer

v'Jould be $134 per unit.

" The negative impacts on

manufacturers projected by the FIM are

smaller than might be expected from

these increased costs. Thus, the FIM

projects'no increase in business risk

attributable to standards and increased

profitability for large firms as a result of

standards. On the other hand,

profitability over the period 1987-1991

for a medium-size firm decreases' over

. 25 percent at level 4 and over 20 percent,

at both levels 2 and 3. Similarly,

profitability for small firms declines

almost ,30 percent over the same period

at level 4 and over 20 percent at levels 2

and 3. The effect on firms' debt/equity

ratio is not pronounced.

As indicated in the General

Discussion section, the FIM impacts are

fully accurate only to the extent that the

prototypical firm did not make

investments in improving appliance

efficiency as part of it5 historically

indicated investments. 95 In the case of

CACs the ORNL Model projects that by

1987 the S\t\TEF will be 7.40 SEER in the

base case. From the EnAD this vlould

indicate that 16 percent of the necessary

investment to achieve the highest

standard level would be made as part of

historically indicated investments. Thus,

the FIM negative impacts actually

attributable to the highest standard level

should be reduced by about 16 percent.

At level 3, however, the EnAD indicates

that 80 percent of the necessary

investrnent yvould be made as part of

historically indicated investment.

. Consequently, the FIl\tf impacts at this

level should be reduced by 80 percent.

J1..t levels 1 and 2 the EnAD indicates

lhat all of the necessary investment

would be made as part of the

historically indicated investment.

Therefore, at these levels there should

be virtually no nagative impact cn

manufacturers, notwithstanding the

large increase in costs.

95 This conclusion, however, applies only to the

"average" (in terms of the shipment weighted

efficiency of its product) .prototypical firm. The

negative impacts suffered by a firm that had made

limited or no investments in improved product

efficiency would still app."'Oach or be those reflected

by the FIM.

However, some commenters stated

that the FIM did not fully explore the

negative impacts on manufacturers. One

commenter, Bard Manufacturing

Company, No. 2117, noted,that several

large firms have recently discontinued

their CACs divisions or sold them,

because of poor profitability. Bard states

that the DOE analysis does not

recognize the severe impacts that a

standard level could produce on the air

.conditioning industry, arguing that some

firms could be driven out of business.

In addition to the above mentioned

quantified impacts on manufacturers, an

effect of a standard, as indicated

previously, would be to require certain

investments to be made that might not

otherwise have been made. These

required investments may result in the

forgoing of certain other investments

which would be more beneficial to the

manufacturer. Manufacturers generally

supported this conclusion.

B. Impact on Consumers. At all

standards levels, consumers would incur

substantial increases in first costs. For

example, for a split system, 39,000 BTU

and under unit, the most popular class,

at a level 2 standard the price increase

would be $366 or a 33 percent increase,

and at level 3, the price increase would

be $414 or a 37 percent increase. For a

single system, 39,000 BTU and under

unit, at standard level 2 the price

increase would be $376 or a 3.7 percent

increase, and at level 3, the price

increase would be $442 or a 44 percent

increase. For a split system over 39,000

BTU unit, the price increase at a level 2

siandard would be $391 or a 20 percent.

increase, and at level 3, the price

increase would be $411 or a 21 pe'rcent

increase. For a single system over 39,000

BTU unit, the price increase at a level 2

standard would be $383 or a 22 percent

increase, and at leyel3, the price

increase would be $524 or a 30 percent

increase. At standard level 4, the price

increases would be even greater. As

previously discussed, DOE does not

have sufficient data to create a full "cost

book" for this efficiency level, therefore,

DOE does not have a precise estimate of

the increase in prices of units at this

level. Even at standard levell, the price

increases are not small. The most

popular class at levelt would increase

in price by over $319, or over 28 percent,

YJith the prices for other classes

increasing by more than $300.

These large price increases, especially

\vhen they are not part of a life cycle

cost decrease, see infra, are likely to

have an adverse impact on all income

groups. Although the income elasticity

for CACs was higher than for any other

prod.uct measured, it is clear that such

3

large price increases will re,sult in a

change in consumer buying patterns

Thus, DOE believes that because of 

size of the price increase, there wjll 

substantial impact on consumers. '.

Supplement, EcAD at 582-611..

Nevertheless, the analysis indicates 

less than 2 percent of the household

with an income"of over $15,000 wou

forgo the purchase of CACs each ye

a ,result of a standard set at the high

level. However, the analysis only

measures direct purchas~s by consumers and does not measure

purchases by third parties, such as

builders. For pUfposes of the analys

DOE determined that only 36 perce

CACs were purchased dirctly. See

Supplement, EcAD, Appendix J at 5

Thus, there could be a substantial

number of CACs that would not be

purchased by builders or other,third

party purchasers that would not be

reflected in the analysis. 96 The imp

on lower income households ($15,00

income or les's) is greater, with over 

percent of those who would have

purchased CACs not purchasing the

because of the increased price

attributable to standard level 4. In t

less than $7,000 income range, over 

percent would forgo CAe purchase

each year. While the percentages o

lower income households that wou

forgo CAC purchases are large, the

absolute number of households so

impacted are small (i.e., 5843 lower

income households per year would 

CAe purchases), since lower incom

households are the least likely to

purchaseCACs in any case. 97

On the other hand, households th

rent their housing VJill probably no

purchase CACs in any event and m

accept the equipment provided by 

landlord. DOE believes that with re

to lower income households, landlo

are most likely to provide the least

expensive CAC, if any, and hence 

least efficient. If such a landlord w

purchase 'a more expensive CAC, a

result of standards, DOE believes t

the landlord ~ill probably recover 

increased costs through higher ren

through diminished services.. DOE 

not have data as to the ntlmber of

households in this situation-lowe

income renters with CACs potentia

subject to standards whose electri

bills are not paid by the landloid. A

9fiThis analysis only measured the impact 

standard set at level 4. Standards set at leve

would necessarily have smaller impacts und

analysis.

1'1 Only about 14 percent of the lower inco

households have CAes. See Housing

Characteristics. 1980, DOE/ElA-0314 (June 1

Figure 9.
 CAS-RM-78-110 COMMENT 10

39404 Federal Register / Vol. 48, No. 169 I Tuesday, August 30,. 1983 I Rules and Regulations ==

these households, however, DOE

believes energy efficiency standards

would have no positive impact.

Considering the burdens and benefits

of possible standards for CACs to all

consumers arid lower income persons,

DOE concludes that the effects of a

standard would be somewhat negative'

because of the substantial increase in

first cost to all consumers and the

possible foregone purchases of CAGs by

lower income households. Moreover,

since DOE's analysis does not review

the 64 percent of all CACs purchased by

third parties,. it is likely that the large

increase in first cost could alter the

buying patterns of third party

purchasers to the detriment Qf the

ultimate user of the units.

C. Life Cycle Cost. As indicated

above, DOE has made three changes to

the costlefficiency curves for GAGs that

affect the life cycle cost. The first and

most significant was the change in the

capacity and usage, of the average CAC, .

reducing substantially the life cycle cost

minimum for CACs in the ORNL

Model. 9S Also, DOE added a new point

on the cost-efficiency curves,

representing more advanced technology

than was reflected in the April 1982

proposal, and deleted the previous

highest efficiency design option in the

EnAD, on the basis of comments on the

proposal independently and together,

these two changes reduce the cost of

more efficient CACs on the costefficiency curve and consequently

reduce the life cycle costs of the most

efficient CACs. They are not reduced

enough, however, to become life cycle

cost minima.

For the product as a whole, the life

cycle cost minimum is below all the

standard levels analyzed. For two

classes of CACs representing almost 75

percent of the market, their life cycle

cost minima are likewise well below all

standards levels. For the class of large

split systems, the life cycle cost

minimum is below only the level 4

standard. For the class of large single

package systems, the life cycle cost

minimum is below both levels 3 and 4.

98The ORNL Model determines energy

consumption by product. not by product cla~s.

Therefore, the cost-efficiency curves reflected in the

cost-efficiency data in the EnAD for the product

classes are first recreated into a cost:..efficiency

curve for the product as a whole. A life cycle cost

curve, including the life cycle cost minimum, for the

. product a8 a whole can then be determined. The'-

Life Cycle Cost Analysis. however. treats each class

of product separately. For CACs, ,this results in four

life cycle costs curves and four life cycle coet

minima. For two classes. representing almost 75

percent of the market, the life cycle cost minima are

below' all standards levels. For the remaining two

classes. the life cycle cost minima are only below a

level 4 standard

This indiGates that any standard for

CACs a't level 2 would prohibit the

manufacture and sale of the most costeffective model. of CAC to an average

consumerin the classes making up 75

percent of the national market.

Moreover,. a 'standard at level 4 would

prohibit the most cost-effective model of

CAC to the average consumer in every

class of CAC. Finally, at level 3, a

standard would prohibit the most costeffective model of CAC to the average

consumer in three of the four classes,

making up 84 percent of the market.

In the April 1982 proposal, DOE

indicated that it would consider it to be

a significant burden of a standard if the

standard prohibited from the market the

average consumer's most cost-effective

model of an appliance. As indicated in

the General Discussion, no commenter

disagreed with assigning such a burden

to a standard that had such an effect.

Prohibiting the life cycle cost

minimum for.an appliance denies the

freedom to the consumer to purchase the

product that is most cost-effective.

However, even when consumers have

the freedom to make such a choice, they

do not always do so. As discussed in the

General Discussion section, there is

always some market distortion such that -

the efficiency of the average purchase

falls short of the life cycle cost

minimum. Thus, it is possible to prohibit

the most cost-effective model of an

appliance and yet at the same time

reduce the average life cycle cost for

appliances of that type. That is, a

standard may result in a life cycle cost

for the appliance that is higher than

necessary but still less than the life

cycle cost of the average product in the

market. On the other hand, a standard

not only may prohibit the most costeffective model of an appliance but also

actually increase the average

consumer's life cycle cost. In the April

1982 proposal, DOE indicated that it

would consider it a substantial burden

of a standard if it had the effect of

actually increasing consumers' life cycle

costs. No commenter contested this

position.

The comparison of life cycle costs at

the various standard levels to the life

cycle cost of a central air conditioner at

the 1987 SWEF reveals that for the two

classes of 39,000 BTU and under central

air conditioners that make up 75 percent

of the market, a standard at all central

air conditioner levels actually increases

the average. consumer's life cycle costs.

For a split system 39,000 BTU and less

central air conditioners, the life cycle

cost at level 1 increases by $17, at level

2, by $19 at level 3, by $24, and at level

4, by $153. For' a single system 39,000

BTU· and less central air conditioner,. the

life' cycle cost at level 1 increases by

$6.00, at level 2,. by $8.00 at level 3, by'

$16,' and atlevel 4, hy $208. However,. for

a split system•. greater than 39,000 BTU

central air conditioner, the life cycle

cost decreases by $106 at level 1,. by'

$154 at level 2 by $187 by level 3, and by

$131 at level 4. For a single system,

greater than 39,000 BTU central air

conditioner, the life cycle at level 1

decreases by $164, at level 2 by $215, at

level 3, by $169, and at level 4, by $43.

See EcAD Supplement, Table G-9.

Accordingly, a standard would

prohibit the most cost-effective models

and would raise life cycle costs for the

average consumer of the most popular

classes of CACs. However, it should be

noted that the narrow differences

between the negative financial impacts

recorded at levels 1, 2 and 3, result from

the almost flat nature of the life cycle

cost curves for the two most popular

classes of CAC until they reach very

high efficiences. Differences in life cycle

costs between the various efficiencies

below level 4 are therefore small. This is

shown, for example, in the Supplement

where the life cycle cost differences

between the 1987 SWEF and levels 1, 2.

and 3 are not more than $24 for one

class and not more than $16 for the

other.

Thus, it is appropriate to consider the

life cycle cost effects of a standard for

CACs at all levels to be a burden

because a standard would penalize.the

average consumer, rather than benefit

him. While the degree of burden

increases as the amount of penalty

increases, it should be noted that at

level 4 the amount of the penalty is very

large (between $150 and $200 for the

classes making up 75 percent of the

market). 99 Both the amount of the

penalty and the fact of the penalty are

taken'into account in weighing the

benefits and burdens of standards.

The regional analysis of the life cycle

cost effects of a standard for CACs

reflects the fact that the effects of a

standard for CACs differ substa"ntially

depending upon the area involved. See

Supplement. 100 For example, in six

States the combination of climate and

electricity prices results in a·life cycle

cost minimum above the most stringent

"While life cycle cost penalties are measured

over the life of the product (12 years for CACs). the'

penalties are suffered in the. year of purchase in the

increased purchase price of the product that is

never recouped in discounted fuel price savings.

Life cycle cost benefits. however. are felt only over

the life of the product. 8S fuel price savings

outweigh the increased purchase price.

looThe analysis in the Supplement reflects only.

the effects with regard to the most popular class of

CAe. making. up 60 percent ofthe market.

•

•

•
 CAS-RM-78-110 COMMENT 10

F'ederal Register / Vol. 48, No. 169 / Tuesday, August 30, 1983 / Rules and Regulations

• ULZS1

standard level-that is, the most costeffective model would not be prohibited

even at the highest standard level. On

the other hand, in 23 States the most

cost-effective CAC would be prohibited

at even the lowest·standard level,

because of those States' low electricity

prices, low number of cooling degree

days, or a combination of both.

Similarly, comparing the difference in

the life cycle costs between the

projected 1987 SWEF and the various

standard levels, the analysis shows that

States with average or below average

CAC usage and below average

electricity prices are generally harmed,

while States with above average CAC

usage and average o'r above average

electricity prices are benefited.

Hovvever, it should be noted that any

benefits or burdens reflected in this

analysis are based upon the average

consumer's usage of CACs. To the

extent that an individual consumer uses

a CAC less than average, even in a State

with a positive LCC, that consumer

would be harmed. At level 4, 35 States

are h'armed, compared to 16 benefited,

but at levels 1,2, and 3, 28 States are

benefited compared to 23 harmed. ,

rvloreover, as might be expected, those

States that benefit generally have h~gh

. levels of CAC saturation because of the

hotter climate. The 16 States that benefit

at level 4 account for almost half of all

the CACs in the Nation. The 28 States

that woud be assisted by standard at

levels 1, 2 or 3 account for nearly 75

percent of CACs, saturation in the

market.

The ORNL Model's NPV output is

consistent with the life cycle cost

analysis. At standards levels 3 and 4 the

Model projects a negative NPV, ranging

from $85 million at level 3 to' $358

million at level 4 over the period 1987-

2017. At levels 1 and 2, however, there

are positive NPVs of $153 million and

$63 million, respectively. The positive

NPV at levels 1 and 2, notwithstanding

the small increase in life cycle costs for

the classes that make up 75 percent of

the market, reflects the much larger

decrease in life cycle costs for the

remaining 25 percent of the market and

representing the larger units. None of

these amounts, however, are large in an

absolute sense. For example, spread

over the Nation's 80 million households

the negative NPV is less than $.15 per

year per household at level 4, while the

positive NPV for CACs at level 2 is only

$.08 per year per household.

The NPV's for CACs decrease as the

standard requires greater efficiency.

Thus, moving from a level 1 standard of

efficiency (which does not save '

significant energy) to a level 2 standard

(which does) results in a decrease in

NPV. As indicated in the April ,1982

proposal, this reflects that such a

mandated increase in efficiency of

,CACs results in an increase in the

negative present values relative to the

positive present values.

D. Energy Savings. As indicated

above, over the 12 years of the average

life of a CAC, a standard for CACs

would, beginning in 1987, save between

0.76 and 1.23 Quads of electricity, 101

which is an average 0£.063 to .103

Quads of electricity per year. This

amount of energy on a yearly basis is

not very great.

E. Lessening of Utility or PerforlllanCe

ofProducts. Concern was expre'ssed by

.. some commenters that standards for

CACs could result in the design of CACs

that do not achieve a 20 percent

dehumidification. Were this true DOE,

would agree that this would constitute ·a

burden attributable to standard, because

dehumidifieation by CACs is, at least

where humidity is a problem, a definite

utility or performance aspect of CACs.

As was indicated in the technical

discussion, hOlllever, one of the reasons

why DOE's highest analyzed standard

level is below the efficiency claimed for

some existing models in the market is

because that standard level can be

achieved with existing technology while

retaining necessary dehumidification

capabilities.

DOE is not aware of any other factor

associated with 'a standard set at a level

analyzed that might affect the

performance or utility of existing CACs.

However, as was discussed above,

despite DOE's best efforts to assure no

negative impact on performance or

utility of existing products, there is no

assurance that as a result of standards

disincentives to investment in new

performance or utility features that

might reduce efficiency would lessen the

utility or performance of future products.

\l\Jhile manufacturers supported this

conclusion in general, they gave no

examples specific to CACs.

F. Impact ofLessening Competition.

The Attorney General has determined

that t..ite absence'of a Federal standard

for C.l\Cs would have no impact on

competition. The Attorney General did

not assess the possible effect on

competition attributable to a Federal

101 As described earlier, these figures actually

overstate energy savings to the extent that the

ORNL Model includes central air conditioning

systems not, subject to the Act, such as those

systems in large buildings. DOE is not able at this

time, however, to quantify the extent of this

overstatement.

standard for CACs at the levels

analyzed. 1 Q2

G. Need to Save Energy. Centr

conditioners use electricity exclu

as their energy source. The elect

that would be saved by standard

CACs would be concentrated in 

parts of the Nation and would b

concentrated during summer pea

periods. While peak load saving

generally more valuable to ,utilit

normal load savings, the value o

savings depends greatly on the n

the particular utility's peak load 

consequently is highly regional, 

local, in chara,cter. Thus, althoug

savings of electricity associated 

CACs are more valuable than o

forms of electricity savings, the 

value of those savings depends 

load characteristics of the partic

utility.

H. Other Factors. The signific

negative impacts projected by t

on the prototypical small manuf

of CACs were presented above. 

with respect to profitability was 

any significant negative impact

Moreover, after adjusting' for

investments made as part of his

indicated investments, the only

meaningful impact would be at 

In the April 1982 proposal, .how

DOE indicated its belief that th

methodology of the FIM would 

understate the negative impact

standards on small firms. No co

were received specific to small 

manufacturers, but no commen

disputed DOE's reasons for con

that the FIM methodology tend

understate the negative effect o

standards on small manufactur

Consequently, DOE concludes 

negative impacts projected by 

(as adjusted) understate the ne

impact of standards on small

manufacturers of CACs.

Weighing ofF-actors

The benefits of a standard fo

are Li.at it would save electrici

have a positive net present val

levels 1 and 2, while at levels 3 

benefit of a standard would be 

saves electricity. The amount o

electricity saved at each of lev

and 4 is greater over the period 

2005 than Li.e electricity saved 

highest standard level for any 

product. Moreover, the electric

is peak load electricity, genera

102 In 1980 the Attorney General did 

the Ju.."le 1980 proposal to set Federal st

That COIll:nent 1I\'as highly critical of th

used and conclusions reached in that p

the extent that it was said that a conclu

the impact on competition could not be 
 CAS-RM-78-110 COMMENT 10

39406 Federal Register I Vol.. 48, No. 169 I Tuesday, August 30~ 1983 / Rules and Regulations.

most valuable type of electricity

savings. While there are positive net

present values at levels 1 and 2, they are

small in magnitude. .

The burdens of a standard for CACs

depend on the level analyzed. At level 4

there are very significant burdens. The

impacts on manuf~cturers, while not

overltvhelming, are nega tive for small

and medium-size manufacturers. The

negative life cycle cost impacts,

moreover, are substantial-eliminating

from the market place the fflost costeffective CAC to the average consumer

in all four product classes and .raising

the life cycle cost to the average

consumer by lc;irge amounts in the two

classes that make up 75 percent of the

market. The net present value analysis

reflects these impacts with the largest

negative net present value of any

product or class under any analyzed

standard level. Accordingly, the

negative impact on consumers at level 4

creates a substantial burden. In

addition, on a regional basis, staIldards

would have a negative impact on 35

States. Finally, to these quantified

burdens must be added the smalt

additional unquantified burdens

reflected in the discussion. Weighing the

benefits of the 1.23 Quads of electricity

savings, much of which is peak load

savings, against all these burdens, DOE.

concludes that a standard set at level 4

would not be economically justified.

At level 3, while the electricity

savings are less, so also are the burdens.

The quantified negative impacts set

forth in the FIM on small and mediumsize manufacturers are quite small.

I-Iowever, a standard set at this level

could drive some manufacturers out of

business. Such a result could be

potentially anti-competitive. Although "

the increase in life cycle cost for the t"vo

most popular classes is reduced by over

90 percent, the most cost-effective

models of CAGs in three classes are

eliminated from the market place. The

net present value is also negative. The

increase in first cost to consumers is

over $400 for all classes of CACs. Thus,

this combined neg~tive impact on

consumers creates a substantial burden.

Moreover, on a regional basis~ standards

would have a negative impact on 23

States. Finally, to these quantified

burdens ffiUSt be added the small,

additional unquantified burdens

reflected in the discussion. Weighing the

benefits of 1.07 Quads of electricity

savings, much of which is peak load

savings, against these burdens: DOE

concludes that the burdens outvveigh the

benefits. 103

100 Since the 1.07 Quads includes savings

attributable to a possible overestimation of the

At level 2, the electricity savings are

reduced to 0.92 Quads, and the burdens

are somewhat less. Notably, the

nega live impacts predicted by the FIM

on manufacturers small to begin with,

are totally eliminated. However, there is

always the possibility that some

manufacturers could be driven out of

business by a standard set even at this

level. This result could potentially be

anti-competitive. The negative life cycle

cost impacts are again reduced, although

the t\.'Vo smallest classes of CACs which

represent almost 75 percent of the

market, have life cycle cost minima

which are belov'! level 2. The net present

value for the product as a whole

becomes. a positive number however,

(albeit a number so small as to be within

the error range) and the NPV therefore

becomes a·small benefit. The increase in

first cost to consumers ranges from $366

to $391, depending on the class of CAC.

When all of these consumer impacts are

considered, however, it is clear that the

small positive NPV cannot outweigh the

nega tive Lce results and the large

increase in first costs. Accordingly; DOE

has determined that these negative

impacts on consumers constitute an

appreciable burden. Finally, to these

quantified burdens must be added the

small, additional unquantified burdens

reflected in the discussion. Weighing the

benefits of electricity savings of 0.92

Quads, much of which is peak load

savings, against the burdens at a level 2

standard, DOE concludes that the

burdens of a standard at level 2

outweigh the benefits and that a

standard set at level 2 is not

economically Justified. 104

At levell, the electricity savings are

still less and do not meet any of DOE's

tests of significance, and the net present

value is slightly more positive. The life

cycle cost burdens, however, remain

virtually the same "as level 2. While

these burdens are not great, neither at

this level are the savings. Consequently,

DOE concludes that the burdens of a

standard at level 1 outweigh the

benefits.

Accordingly, because of the

significant negative impacts on

"'consumers at all standard levels as well

as negative impacts on some

manufacturers, DOE has determined

that the economic burdens of any energy

number of CACs, and real inconle growth, as well

as a possible underestimation of increased usage as

a result of increased efficiencies, any reduction of

the savings figure would tend to tip the 'balance

further in favor of the burdens outweighing the

benefits. .

104The 0.92' Quads is subject to the same

reductions in savings discussed supra in note 103.

Such reductions insBvings would further tend to tip

the balance inf.avor of the burdens outweighing the

benefits.

efficiency standard for CACs clearly •

outweigh the small benefits attributable

to saving energy_

g. flome Heating Equipment (Not

Including Furnaces)

The Department of Energy is not

proposing a rule with respect to the

product home heating equipment (not

including furnaces) (hereafter referred to

as "home heating equipment"). At the

present time,'there is no test procedure

applicable to unvented oil or gas home

heating equipment. "Thus, a standard

would be precluded for this class, even

though it probably .is the largest growing

class in the product type. Moreover, it

does not appear likely that it would be

technologically feasible to improve the

efficiency of electric resistance home

.heating equipment for the same reasons

described with respect to electric

furnaces, see infra. Finally, DOE is

proposing major modifications to the

existing test procedures relating to

vented home heating equipment in light

of the burden on manufacturers, as well

as concerns raised with respect to the

failure of the existing procedure to

measure the effects of thermal stack

dampers and modulating controls on

energy efficiency. . •

In light of the above, DOE believes it

would be premature to propose any rule

at the present time with regard to home.

heating equipment.

IV. Preemption of State Regulations

On December 22, 1982, DOE published

a final rule with respect to the

procedures by which States may obtain

exemptions for State or local efficiency

standards that are statutorily preempted

and by which manufacturers may obtain

preemption of a State or local efficiency

standard for which there is no Federal

final rule. 47 FR 57198, 57213. DOE also

established a rule for determining the

effective dates of a final Federal

standard or no-standard determination,

upon ."vhich supersession of State and

local standards would take place. The

rule stated that a Federal standard or

no-standard determination would be

effective in a State 180 days after

publication of the Federal standard or

determination in the Federal Register,

unless the State had filed a notice of

petition within 60 days and a petition for

a rule to exempt its State or local

standard withi~ 120 days of publication.

If a State filed such a notice and

petition, the State standard would not • be superseded until DOE had denied the

requested rule, but in no event sooner

than 180 days after publication of the

standard. Thus," no hiatus would occurwhen a State or local standard would
 CAS-RM-78-110 COMMENT 10

Federal Register / Vol. 48, No. 169 / Tuesday, August 30, 1983 / Rules and' Regulations 

not be in effect-if the State obtained an

exemption.

The final rule adopted today

determines that an energy efficiency

standard for r.efrigerators and

refrigerator-freezers, freezers, water

heaters, room air conditioners, or

furnaces would not result in a

significant conservation of energy or be

economically justified, and that an

energy efficiency standard for CAC's

would not be economically justified.

Thus, any State or local appliance

efficiency standard with respect to these

products is preempted on the effective

date of this rule unless a StateJiles a

notice of petition for a rulemaking

within the 60 days and the petition

within' 120 days.

Since publication of the December

1982 rule, DOE has received several

questions concerning the timing of

preemption in a State, the requirements

for submittal of petitions for exempting

a State standard from preemption, arid

the criteria to be used by DOE to

evaluate the petitions.

The California Energy Commission

(CEC) specifically requested

clarification of Section 430.34(b) VJhich

provides that the final effective date for

the rule may be:

With respect to a covered product in a

particular State for which that State has filed

a notice of petition within 60 days of

publication of that standard in the Federal '

Register, and a petition under section

327(b)(3) of the Act within 120 days of

publication of that standard in the Federal

~egistert the date upon which the Secretary

issues or denies a final rule concerning that

petition.

The CEC asserts that because the

Secretary's determination with respect

to a particular petition is a rule under

section 327(b)(3) of the Act, it cannot be

effective upon publication of the rule,

but instead can only be effective by a

date.at least qO days after publication of

the rule. 5 U.S.C. 553(d). Thus, there

would be a 30 day hiatus during \vhich

the Federal standard or no-standard "-

determination would apply in the State

and preempt the State standard, before

a rule granting an exemption from

preemption would take effect.

TheCEC's comment has substantial

merit. DOE, in promulgating § 430.34(b)

did not intend for such a hiatus to occur.

Indeed, such a hiatus would directly

contravene the purposes of § 430.34(b).

In order to clarify DOE's intent, DOE is

amending § 430.34(b) to provide:

WiL~ respect to a covered product in a

particular State for which that State has filed

a notice of petition within 60 days of

publication of thatstandard in the Federal

Register, and a petition under section

327(b)(3) of the Act within 120 days of

publication of that standard in the Federal

Register, 30 days from the date upon which

the issuance: or denial of the final rule

concerning that petition is published.in the

Federal Register.

This minor amendment makes clear

that the effective date of a final. energy

efficiency standard for which a State

files a timely petition occurs 30 days

from publication of that rule in. theFederal Register.

The National Conference of States on

Building Codes and Standards, Inc.

(NCSBCS) expressed confusion over

who may submit petitions· for exemption

of State rules from preemption. In order

to simplify the current procedure. which

requires each State to submit separate

petitions for. each covered product,

NCSBCS suggests a uclass action" filing

by NCSBCS on behalf of each concerned

State that has adopted ASHRAK

Standard 90A-1980 for particular

products and that wishes to' participate

in the action. NCSBCS argues thatthis

approach would be less burdensome' on

both the States and DOE.'

Although DOE agrees that the

NCSB.CS approach would certainly be

less burdensome, the Actprohibits the

type of "class action" submission· that

NCSBCS envisions. Section 3'27(b)(3) of

the Act only permits States to submit

petitions for exemption from

preemption. ~loreover, a separate

determination must be made by DOE

with respect to each petition. This is not

to say, however, that DOE cannot

consider a number of petitions in one

proceeding. Indeed, DOE expects to

proceed in such a fashion. Except for the

minimal filing requirements with respect

to each State's petition, see 10 CFR

430.44(b), a State may, if it wishes, rely

on NCSBCS or other persons or

organizations to submit data or

arguments in the rulemaking proceeding

in support of the State's petition. Like

any other rulemaking, DOE will make its

decision on States' petitions, applying

the statutory tests, only after full .

consideration of the ruleniaking record.

DOE has also received comments

concerning the criteria used by the

Secretary for reaching a determination

of the State petitions. As DOE discussed

a.t length in the December 1982

rulemakillg, DOE will evaluate the

petitions based upon the language of the

statute at Section 327(b)(3). 47 FR-57213-

4. Thus, DOE ~vil1 grant an exemption to

a State if the State standard is more

stringent than the DOE standard, and

there is a significant State or local

interest to justify the regulation; unless

DOE finds that the State standard

unduly burdens interstate commerce.

For a fuller discussion of the

Department's views, and the type of

State and local law that would b

subject to supersession, see 47 FR 

DOE-has incorporated into the 

rule a minor.technical change

concerning the filing requiremen

petitions. In § 430.42, the address

specified for filing petitions has b

changed to read as follows: "U.S

Department of Energy, Section 3

Petition-Energy Efficiency Prog

Consumer Products, Assistant S

for Conservation and Renewable

Energy, Mail Station, CE-l, Forre

Building, 1000 Independence Ave

SW., vVashington, D.C. 20585:~~

v. Procedural Matters

a. Envil'onI[lental Issues

The 1980 environmental asses

(EA) for the then propos'ed energ

efficiency standards estimated t

energy savings resulting from na

standards for eight appliances w

within the range of 0.8 to 1.6 qua

year. The EA then analyzed the

environmental impacts of this ch

energy use. Based on this EA, a 

of no significant impact was issu

concluding that this level of cha

energy usage would not signific

affect the quality of the human

envirOIL"llent (June 30, 1980 45 FR 

In neither the June 1980 proposa

.April 1982 proposal was any com

received disputing the conclusio

1.6 Quads per year change in en

usage would not have a signific

impact on the environment.

The NRDC, in commenting up

April 1982 proposal, however, c

DOE's reliance upon the June 19

for its determination t~at the Ar

proposal would not have signifi

environmental impacts since th

1980 EA did not address the imp

Federal·no-standard standard

preempting existing State stand

NRDC alleged that the effect -of 

preemption would be to increas

usage compared to the status qu

of no Federal standard but the e

of State standards.

Initially, DOE believes that th

NRDC's comment is not well-fo

As indicated in the December 1

rule, while a Federal no-standa

standard· would preempt State

standards in the absence of an

exemption for the State standar

DOE's review of existing State

standards makes it appear high

that the exemptions would be g

Both the expressed interest of s

States in their standards and th

of petition for exemption filed w

respect to·the December 1982 fi

indicate that States will in fact 
 CAS-RM-78-110 COMMENT 10

39408 Federal Register· / Vol. 48, No. 169 / .Tuesday, August 30, 1983 I Rules and Regulations

exemptions. Consequently, the

circumstance NRDC suggests should be

analyzed-the elimination of all existing

State standards-would appear to be an

exceptionally improbable situation.

Nevertheless, DOE has analyz~d the

impact of such an improbable situation.

First, a "worst casen analysis \vas

constructed. Under this "worst case" it

was assumed that all States have

standards as strict as California's. This,

of course, is factualy incorrect, however,

since California has, with respect to all·

products, the strictest and most

pervasive appliance efficiency

standards of any State. It was also I

assumed that all efficiency

improvements that have been achieved

while these standards have been in

_place would be abandoned by'

manufacturers and consumers, and that

manufacturers at considerable

investment expense would retool to

make less efficient equipment than they

are currently makin.g. Such an

assumption strains credulity and is

directly contrary to a determination

made by DOE on the record of the .

rulemaking that energy efficiency

improvements have primarily resulted

from increased energy prices, not State

standards.

From these assumptions DOE took

California's claimed energy savings

attributable to its standards, which were

criticized by some comnlenters in this

rulemaking as unrealistically high, "and

determined per-capita energy savings in

California. These per-capita energy

savings were then applied nationwide.

This results in a "worst case" of a nostandard determination, eliminating all

State standards, causing an increase in

energy use of 0.95 Quads per year for all

appliances from what vw"ould be used

vlith Sh.::.te standards. This 0.95 Quads

im.pact per year is substantially less

than the .maximum of 1.6 quads per year

that DOE had previously determined to

result in insignificant impacts on the

quality of the human enviroIlJ~ent. Thus,

DOE has concluded that the .&~pril1982

proposal even under the most extreme

unrealistic 'eVorst case analysis would

clearly not result in significant

environmental impacts so that neither

an EA nor EIS are required.

DOE also attempted to make a more

realistic appraisal of potential

environmental impacts if all State

standrds were eliminated, a situation

DOE believes to be highly improbable,

as discussed above. In thi~ appraisal,

actual individual State standards were

used instead of California's. For the

products central air conditioners, room

air condition~rs, gas furnaces, and water

heaters, all sales subject to standards

were assumed to be made at the

standard level. 105 Using the national

average SWEF projected by the ORNL

Model in the base case, plus the SWEF

for all sales subject to standards, DOE

calculated a SWEF of sales not subject

to standards._This SWEF is then applied

nationwide for all sales of the Jour

products to determine energy usage if all

~tate standards were preempted. Under

the methodology, elimination of State

standards would have the followina

effects: 0

"central air conditioners-a total of 1.22

Quads over the period 1984-2059

room air conditioners-a total of 3.88

Quads over the period 1984-2146

gas ,vater heaters-a total of 0.407

Quads over the period 1984-2018

electric \'Vater heaters-a total of 0.321

Quads over the period 1984-2021

gas furnaces-a total of 0.001 Quads

over the period 1984-2011

For freezers, refrigerators, and oil

furnaces there are hardly any models in

commerce that do not satisfy existing

State standards, and there is no

increased use of energy that would

occur as a result of the elimination of

State standards.

PI. copy of this analysis, including the

methodology, is available for inspection

at the DOE Freedom ofInformation

Reading Room, Room 1El90, Forrestal

Building, 1000 Independence Avenue,

S.W., Washington, D.C., 20585, between

the hours at 8 a.m. and 4:00 p.m.,

Monday through Friday.

Again, for the reasons explained

earlier in the preamble·and this section,

DOE does not believe that-a nostandard determination would result in

any increase in any energy usage

con;pared to the base case. The figures

derrved here assume total elimination of

State standards with no exemptions and

assume that manufacturers and

consumers abandon the efficiencies L~at

already are in the marketplace, boL, of

which assumptions are unrealistic.

Based upon the findings of the EA and

subsequent analysis, it has been

determined that this rule does not

constitute a Umajor Federal action

significantly affecting the quality of the

human environment" within the

meaning of t.he National Environmental

Policy Act, 42 U.S.C. 4321 et seq., and

therefore an environmental impact

statement is not required by NEPA and

the applicable DOE guidelines for

compliance lvith NEPA.

lOS If sales, in fact, were above the standard level,

then the standard was not responsible for that

efficiency level. Moreover, DOE is makinQ no

determination with respect to central air 0

conditioners in this final rule.

b. Executive Order 12291

Executive Order 12291 requires

agencies to determine if a rule is a

"major rule" under Lhe Order. In the

April 1982 proposal, DOE determined

that the rule proposed there would not

be ,8 major rule because, if adopted, it,

\vould not result in (1) an annual effect

on the economy of $100 million or more;

(2) a major increase in costs or prices for

consumers, individual industries,

Federal, State, or local government

agencies, or geographic regions; or (3)

significant adverse effects on

competition, employment, investment,

productivity, innovation, or on the

ability of United States-based

enterprises to compete with foreignbased enterprises in domestic or export

markets. This conclusion was not

criticized in the rulemaking proceeding.

The rule adopted today is a part of the

rule proposed on Apri11982 and,

accordingly, would likewise not be a

major rule under the Executive Order.

Consequently, this rule has been

revielved by o:rvrn under tJle procedures

applicable to rules other than major

rules.

c. Regulatory Flexibility

In the April 1982 proposal DOE

certified, pursuant to Section 605(b) of

the Regulatory Flexibility Act, that the

proposal, if promulgated, would not

have a significant economic impact on a

substantial number of small entities.

While the April 1982 proposal received

comment from small businesses

involved in the manufacture of

appliances, generally supportive of the

proposal, the commenters did not take

issue with DOE's certification.

Accordingly, DOE certifies that this rule

will not have a significant economic

impact on a substantial number of small

entities.

In consideration of the foregoing, Part

430 of Chapter II of Title 10, Code of

Federal Regulations is amended as set

forth belo\/v.

List of Subjects in 10 eFR Part 430

Administrative practice and

procedure, Energy conservation,

Household appliances.

Issued in Washington, D.C., August 25,

lG83.

Joseph J.. Tribble,

Assistant Secretar!" Conserv'ation and

Renewable Energy.

PART 430-ENERGY COi\!SERVATION

PROGRAff' FOR CONSUi\1ER

PRODUCTS

1. Section 430.32 is revised to read as

follows:

•

•
 CAS-RM-78-110 COMMENT 10

Federal Register / Vol. 48, No. 169 / Tuesday, August 30, 1983 I Rules and Regulations

• § 430.32 Final energy efficiency

standards.

The final energy efficiency standards

for e8:ch class of covered products are:

(a) Refrigerators and refrigeratorfreezers. No standard for all classes.

(b) Freezers. Nostandard for all

classes.

(c) Dishwashers. [Reserved]

(d) Clothes dryers. No standard for all

classes.

(e) v1l ater heaters. (1) For the classes

gas, electric, electric table top, and oil.

No standard;

(2) For the class heat pump "vater

heater. [Reserved]

(f) Room air conditioners. No

standard of all classes.

(g) Home heating equipment, not

including furnaces. [Reserved]

(h) Television sets. [Reserved]

(i) Kitchen ranges and ovens. No

standard for all classes.

(j) Clothes washers. [Reserved]

(k) Humidifiers and dehumjdifiers.

[Reserved]

(1) Central air conditioners-ell For

the classes which include all split

systems and single package units ,which

do not operate with a heat pump. No

standard for all classes;

(2) For the ct'asses which operate with

a he'at pump. [Reserved]

(m) Furnaces. No standard for all

classes.

2. Section 430.34 is revised to read as

follows:

§ 430.34 Effective date.

The effective date of a final energy

efficiency standard (including a

determination of no.standard) in

§ 430.32 shall be the later of:

(a) 180 days after publication of that

standard in the Federal Register, or

(b) With respect to a covered product

in a particular State for which that State

has filed a notice of petition within 60

days of publication of that standard in

the Federal Register, and a petition .

under section 327(b)(3) of the Act within

120 days of publica tion of tha t standard

in the Federal Register, 30 days f

date upon which the issuance or 

of the final rule concerning that p

is published in the Federal Regis

3. Section 430.42(a) is revised t

as follows:

§ 430.42 Filing requirements.

(a) A notice of petition or a pe

for a rule under this section shal

submitted in triplicate to: U.S.

Department of Energy, "Section 

Petition-Energy Efficiency Prog

Consumer Products," Assistant

Secretary for Conservation and

Renewable Energy, Mail Station

Forrestal Building, 1000 Independ

Avenue, S.W., Washington, D.C. 

(Part B of Title III, Energy Policy and

Conservaton Act, Pub. L. 94-163, as 

by the National Energy Conservation 

Act, Pub. L. 95-619, (42 U.S.C. 2691 e

[FR Doc. 83-23787 Filed 6-29-83: 8:45 am)

BtLUNG CODE 6450-01-M