l. 

### , 

### IEE-RM/STD-98-440 -- / 

### c - 

### EXECUTIVE ORDER 12866 SUBMISSION EE-R//SfT-' -. oD Important Please read the instructions on the reverse side before completing this form. For additional forms or assistance in completingthis form, contact the OIRA Docket Library, (202) 395-6880, oryour OIRA Desk Officer. Send three copies of both this form and supporting material (four copies if Economically Significant or an Unfunded Mandate) to: Office of Information and Regulatorj Affairs Office of Management and Budget Attention: Docket Library, Room 10102 725 17th Street, N.W. Washington, D. C. 20503 1.Agency/Subagency originating request 2. Regulation Identifier Number (RIN) Department of Energy 1904-AA77 3. Title Energy Efficiency Standards for Central Air Conditioners and Heat Pumps 4. Stage of Development 5.Legal Deadline for this submission Prerule a) DI Yes

- No X Proposed Rule Interim Final Rule b) Date 0 / 01 

### / 1994 Final Rule DD MM YYYY Final Rule - No material change c) lIl Statutory E Judicial Notice Other 6. Designations a) Economically Significant (E.O. 12866) FK Yes D No Description of Other b) Unfunded Mandate (2 U.S.C. 1532) 7. Agency Contact (person who can best answer questions ER Yes 

## m No

regarding the content of this submission) If eitherofthe above is "Yes," submit four (4)complete Michael E. McCabe packagestoOIRA Phone ( 2 0 2 586-0854 Certification for Executive Order 12866 Submissions The authorized regulatory contact and the program official certify that the agency has complied with the requirements of E. 0. 12866 and any applicable policy directives. Signature of Program Official .f /Date / t t^gt_^ tg////t )_44?D // / Signature ofAuthorizedRegula ontact / Date /
OMB 83-R I Revision: 97 (Pr ious versions obsolete) EE-RM/STD-98-440 

### EXECUTIVE ORDER 12866 SUBMISSION -4'fD**----------.~----~~~~~~** Important Please read the instructions on the reverse side before completing this form. Foradditional forms or assistance in completing this form. contact the OIRA Docket Library, (202) 395-6880. oryour OIRA Desk Officer.
. Send Iilrl:!e a>pies ofboth this form and supporting material (four copies if Economically Significant or an Unfunded Mandate) to:

1. Agency/Subagency originating request 

### Department of Energy 3. Title Office of Information and RegulatorY Affairs

. Office of Management and Budget

Attention: Docket Library. Room 10102 725 17th Street. NW. Washington. D. C. 20503 2. Regulation Identifier Number (RIN) 

### 1904-AA77 Energy Efficiency Standards for Central Air Conditioners and Heat Pumps
4. Stage of Development

__ Prerule 

### _x_ 'Proposed Rule Interim Final Rule Final Rule

__ Final Rule· No material change Notice Other
Description of Other
7. Agency Contact (person who can best answer questions

regarding the content ofthis submission) 

### Michael E. McCabe Phooe(20j 586-0854 5. Legal Deadline for this submission a) 

### IKJ Yes 

### D No b) Date

### _OllLol.,l
__' 01 DO MM I 1994 yyyy c) IX] Statutory 

### D Judicial
6. Designations

a) Economically Significant (E.O. 12866) 

### !XX Yes 

### D No b) Unfunded Mandate (2 U.S.C. 1532) 

### !XX Yes 

### D No Ifeither of the above is "Yes," submit four (4) complete packages to OIRA Certification for Executive Order 12866 Submissions The authorized regulatory contact and the program official certify that the agency has complied with the requirements of E. O. 12866 and any applicable policy directives.

### EE-RM/STD-98-440 ; 

## 22 [6450-01-P] DEPARTMENT OF ENERGY Office ofEnergy Efficiency and Renewable Energy 10 CFR Part430 [Docket Number EE-RM-98-440] RIN:1904-AA77
Energy Conservation Program for Consumer Products; Central Air Conditioners and Heat Pumps Energy Conservation Standards

AGENCY: Office ofEnergy Efficiency and Renewable Energy, Department ofEnergy.
ACTION: Supplemental proposed rule; proposed withdrawal offinal rule. SUMMARY: In response to apetition for reconsideration, and as a result ofreview under President Bush's Regulatory Review Plan, the Department ofEnergy (DOE) is proposing to withdraw its January 22, 2001 final rule setting forth energy conservation standards for residential central air conditioners and central air conditioning heat pumps that are not yet effective and not enforceable until January 23, 2006. As a substitute, DOE proposes to amend the currently enforceable standards by raising the minimum energy efficiency levels by 20 percent. DOE also invites public comment on proposed regulatory amendments to define and implement statutory limitations on its authority to prescribe amended energy conservation standards.

N:\wpdata\airconditionerrule.atd.wpd 1 June 29, 2001 (3:07PM) [6450-01-P] EE-RM/STD-98-440

# ~'2

# 3

DEPARTMENT OF ENERGY Office ofEnergyEfficiency and Renewable Energy 10 CFRPart430 [DocketNumberEE-RM-98-440] RIN:1904-AA77
Energy Conservation Program for ConsumerProducts; CentralAirConditioners and Heat Pumps Energy Conservation Standards

AGENCY: Office ofEnergy Efficiency and Renewable Energy, Department ofEnergy.
ACTION: Supplemental proposed rule; proposed withdrawal offinal rule. SUMMARY: In response to a petition for reconsideration, and as a result ofreview under President Bush's Regulatory ReviewPlan, the Department ofEnergy (DOE) is proposing to withdraw its January 22, 2001 final rule setting forth energy conservation standards for residential central air conditioners and central air conditioning heat pumps that are not yet effective and not enforceable until January 23, 2006. As a substitute, DOE proposes to amend the currently enforceable standards by raising the minimum energy efficiency levels by 20 percent. DOE also invites public comment onproposed regulatory amendments to define and implement statutory limitations on its authority to prescribe amended energy conservation standards.

1 N:lwpdatalairconditionemJle.atd.wpd June 29, 2001 (3:07PM)

### EE-RM/STD-98-440o--- 

# X33 DATES: Comments must be received on or before [INSERT DATE 75 DAYS FROM DATE OF PUBLICATION IN THE FEDERAL REGISTER]. DOE is requesting a signed original,
a computer diskette (WordPerfect 8) and 10 copies ofthe written comments. DOE will also accept e-mailed comments, but you must send a signed original. Oral views, data, and arguments may be presented at thepublic hearing in Washington, D.C., beginning at 9:00 a.m. on [BR S to insert date approximately 60 days from publication at thetime the package is sent to the Federal Register].

DOE must receive requests to speak atthe public hearing and a copy ofyour statements
no later than 4:00 p.m., [INSERT DATE 45 DAYS FROM DATE OF PUBLICATION IN THE FEDERAL REGISTER], and we request that you provide a computer diskette (WordPerfect 8) ofeach statement at that time.

ADDRESSES: Please submit written comments, oral statements, and requests to speak at the public hearing to: Brenda Edwards-Jones, U.S. Department ofEnergy, Office ofEnergy Efficiency and Renewable Energy, Energy Conservation Program for Consumer Products: Central Air Conditioners and Heat Pumps, Docket No. EE-RM/STD-98-440, 1000 Independence Avenue, S.W., Washington, D.C. 20585-0121. You may send emails to: brenda.edwardsjones@,ee.doe.gov.

The hearing will begin at 9:00 a.m., in Room 1E-245 at the U.S. Department ofEnergy, Forrestal Building, 1000 Independence Avenue, SW, Washington DC. You can find more N:\wpdata\airconditionerrule.atd.wpd 2 June 29, 2001 (3:07PM) 

### EE-RM/STD-98-440.-:4t

## ~3 OATES: Comments must be received on orbefore [INSERT DATE 75 DAYS FROM DATE OF PUBLICATION IN THE FEDERAL REGISTER]. DOE is requesting a signed original,
a computer diskette (WordPerfect 8) and 10 copies ofthe written comments. DOE will also accept e-mailed comments,butyou must send a signed original. Oral views, data, and arguments may be presented at thepublic hearing inWashington, D.C., beginning at 9:00 a.m. on [BR S to insert date approximately 60 days from publication at thetimethe package is sentto the Federal Register].

DOE must receive requeststo speak atthepublic hearing and a copy ofyour statements
no laterthan 4:00p.m., [INSERT DATE 45 DAYS FROM DATE OF PUBLICATION IN THE FEDERAL REGISTER), and werequestthatyou provide a computer diskette (WordPerfect 8) ofeach statement at thattime.

ADDRESSES: Please submit written comments, oral statements, and requests to speak at the public hearing to: Brenda Edwards-lones, U.S. Department ofEnergy, Office ofEnergy Efficiency and Renewable Energy, Energy Conservation Program for Consumer Products: Central Air Conditioners and Heat Pumps, DocketNo. EE-RMlSTD-98-440, 1000 Independence Avenue, S.W., Washington, D.C. 20585-0121. You may send emails to: brenda.edwardsjones@ee.doe.gov.

Thehearing will begin at 9:00 a.m., in Room lE-245 at the U.S. Department ofEnergy, Forrestal Building, 1000 Independence Avenue, SW, Washington DC. You can find more 2 N.\wpdata\airconditionerrule.atd.wpd June 29, 2001 (3.07PM)

### EE-RM/STD-98-440- c 5 information concerning public participation in this rulemaking proceeding in Section VII, "Public Comment," ofthis notice ofproposed rulemaking (NOPR).
You may read copies ofthepublic comments, the Technical Support Document for Energy Efficiency Standards for Consumer Products: Central Air Conditioners and Heat Pumps (TSD), the transcript ofthe public hearing, workshop transcripts in this proceeding, thepetition for reconsideration submitted by the Air-Conditioning and Refrigeration Institute, and other postpromulgation submissions at the DOE Freedom ofInformation (FOI) Reading Room, U.S. Department ofEnergy, Forrestal Building, Room 1E-190, 1000 Independence Avenue, S.W., Washington, DC 20585, (202-586-3142, between thehours of9:00 a.m. and 4:00 p.m., Monday through Friday, except Federal holidays. You may obtain copies ofthe TSD and analysis spreadsheets from the Office ofEnergy Efficiency and Renewable Energy's (EERE) web site at: http://www.eren.doe.gov/buildings/codes_standards/applbrf/central_air_conditioner.html.

FOR FURTHER INFORMATION CONTACT: Dr. Michael E. McCabe, U.S. Department ofEnergy, Office ofEnergy Efficiency and Renewable Energy, Forrestal Building, EE-41, 1000 Independence Avenue, S.W., Washington, D.C. 20585-0121, (202) 586- 0854, e-mail: ME.mccabe@ee.doe.gov, or Eugene Margolis, Esq., U.S. Department ofEnergy, Office of General Counsel, Forrestal Building, GC-72, 1000 Independence Avenue, S.W., Washington, D.C. 20585, (202) 586-9507, e-mail: eugene.margolis@hq.doe.gov.

N:\wpdata'airconditionerrue.atd wpd 3 June 29, 2001 (3:07PM) EE-RM/STD-98-440

### ,-1(::-

# M 3 information concerning public participation in this rulemaking proceeding in Section VII, "Public Comment," ofthis notice ofproposed ru1cmaking lNOPR).

You may read copies ofthe public comments, the Technical Support Document for Energy Efficiency Standards for ConsumerProducts: Central Air Conditioners and Heat Pumps (TSD), thetranscript ofthe public hearing, workshop transcripts in thisproceeding, the petition for reconsideration submitted by the Air-Conditioning and Refrigeration Institute, and otherpostpromulgation submissions at the DOE Freedom ofInformation (FOI) Reading Room, U.S. Department ofEnergy, Forrestal Building, Room lE-190, 1000 Independence Avenue, S.W., Washington, DC 20585, (202-586-3142, between the hours of9:00 a.m. and 4:00 p.m., Monday through Friday, except Federal holidays. You may obtain copies ofthe TSD and analysis spreadsheets from the Office ofEnergy Efficiency and Renewable Energy's (EERE) web site at: http://www.eren.doe.govlbuildings/codes
_standards/applbrf/central_ air
_conditioner.html.

FORFURTHERINFORMATION CONTACT: Dr. Michael E. McCabe, U.S. Department ofEnergy, Office ofEnergy Efficiency and Renewable Energy, Forrestal Building, EE-41 , 1000 Independence Avenue, S.W., Washington, D.C. 20585-0121, (202) 586- 0854, e-mail: ME.mccabe@ee.doe.gov, orEugene Margolis, Esq., U.S. Department ofEnergy, Office of General Counsel, Forrestal Building, GC-72, 1000 Independence Avenue, S.W., Washington, D.C. 20585, (202) 586-9507, e-mail: eugene.margolis@hq.doe.gov.

3 N:lwpdata\aircondJllonerrule.atd wpd June 29. 2001 (3:07PM)

### SUPPLEMENTARY INFORMATION: EE-RM/STD-98-440--~ 

# ,> Table ofContents
I.Introduction II. Authority to Reconsider the January 22, 2001, Final Rule III. Proposal to Withdraw Final Rule A. Legal Issues 1. Failure to Obtain the Views ofthe Department ofJustice on the Potential Anti-Competitive Impact of 13 SEER Standards 2. Failure ofthe Statement ofBasis for the Final Rule to Adequately Address Cumulative Regulatory Burdens on Manufacturers B. Policy Issues 1.Burdens on Consumers 2.Burdens on Manufacturers a. Cumulative Regulatory Burden b. Financial Burdens Associated with New Standards C. Conclusion IV. Proposed Rule 

### A. Background 1.Statutory Authority 2. Rulemaking History B. Overview ofthe Proposed Standards 1.Central Air Conditioner and Heat Pump Features 2.Consumer Benefits 3.National Benefits C. Technological Feasibility D. General Discussion ofEconomic Justification Factors 1.Economic Impact on Manufacturers and Consumers 2.Life-Cycle Costs and Rebuttable Presumption 3.Energy Savings 4. Lessening ofUtility or Performance ofProducts 5.Impact ofLessening ofCompetition 6.Need ofthe Nation to Conserve Energy 7.Other Factors E. Methodology Used inDOE Analyses V. Analytical Results and Conclusions A. Overview ofAnalytical Results 1.General 2. Through-the-Wall Products 3.Other Space-Constrained Products B. Re-weighting ofFactors
N:\wpdata\airconditioncrrule atd wpd 

### 4 June 29, 2001 (3:07PM) SUPPLEMENTARYINFORMATION: EE-RM/STD-98-440

# --::it**~** Table ofContents
I. Introduction II. Authority to Reconsiderthe January 22, 2001, Final Rule III. Proposal to WithdrawFinal Rule A. Legal Issues 1. Failure to Obtainthe Views ofthe Department ofJustice onthe Potential Anti-Competitive Impact of 13 SEER Standards 2. Failure ofthe Statement ofBasis for the Final Rule to Adequately Address Cumulative Regulatory Burdens onManufacturers B. Policy Issues 1. Burdens on Consumers 2. Burdens on Manufacturers a. Cumulative Regulatory Burden b. Financial Burdens Associated with New Standards C. Conclusion IV. Proposed Rule A. Background 1. Statutory Authority 2. Rulemaking History B. Overview ofthe Proposed Standards 1. Central Air Conditioner and Heat Pump Features 2. Consumer Benefits 3. National Benefits C. Technological Feasibility D. General Discussion ofEconomic Justification Factors 1. Economic Impact on Manufacturers and Consumers 2. Life-Cycle Costs and Rebuttable Presumption 3. Energy Savings 4. Lessening ofUtility or Performance ofProducts 5. Impact ofLessening ofCompetition 6. Need oftheNationto Conserve Energy 7. Other Factors E. Methodology Used inDOE Analyses V. Analytical Results and Conclusions A. OverviewofAnalytical Results 1. General 2. Through-the-Wall Products 3. Other Space-Constrained Products B. Re-weighting ofFactors 4 N:lwpdala\aircondilionenule.ald.wpd June 29. 2001 (3:07PM)

### 1.Re-weighting ofBurdens on Consumers EE-RM/STD-98440

- , 

# 2 3 2. Re weighting ofBurdens on Manufacturers a. Cumulative Regulatory Burden b. Financial Burdens Associated with New Efficiency Standards C. Conclusions Regarding Conventional Products D. Conclusions Regarding Space-Constrained Products VI. Procedural Issues and Regulatory Review A. Review Under the National Environmental Policy Act B. Review Under Executive Order 12866 C. Review Under the Regulatory Flexibility Act D. Review Under the Paperwork Reduction Act E. Review Under Executive Order 12988 F. Review Under Executive Order 12630 G. Review Under Executive Order 13132 H. Review Under theUnfunded Mandates Reform Act of 1995 I. Review Under the Treasury and General Government Appropriations Act, 1999 J. Review Under Executive Order 13211 VII. Public Comment A. Written Comment Procedures B. Public Workshop/Hearing 1.Procedure for submitting Request to Speak 2. Conduct ofHearing
I. Introduction Pursuant to section 325 ofthe Energy Policy and Conservation Act (EPCA) (42 U.S.C. 6295) and the Administrative Procedure Act (APA) (5 U.S.C. 553), DOE today publishes a three part proposal with regard to energy conservation standards for central air conditioners and central air conditioning heat pumps. First, DOE proposes regulatory provisions to clarify that section 325(o)(1), which qualifies DOE's rulemaking authority to prescribe amended energy conservation standards, applies as ofan effective date for modifying the Code ofFederal Regulations (CFR) set forth in the notice offinal rulemaking and established consistent with the Congressional Review Act (5 U.S.C. 801-804). Second, in order to correct arguable legal errors and policy shortcomings, DOE proposes to withdraw the final rule entitled "Energy Conservation
N:\wpdata'airconditionerrule.atd wpd 5 June 29, 2001 (3:07PM) EE-RM/STD-98-440 .- .J.¥, /j r) 

### 2. 1. Re-weighting ofBurdens on Consumers 

### -:u--- ;/\c?\/ 2. Re
..weighting ofBurdens on Manufacturers a. Cumulative Regulatory Burden b. Financial Burdens Associated withNewEfficiency Standards 

### C. Conclusions Regarding Conventional Products D. Conclusions Regarding Space-Constrained Products VI. Procedural Issues and Regulatory Review A. Review UndertheNational Environmental Policy Act B. Review UnderExecutive Order 12866 C. Review Underthe Regulatory Flexibility Act D. Review Underthe Paperwork Reduction Act E. Review Under Executive Order 12988 F. Review UnderExecutive Order 12630 G. Review UnderExecutive Order 13132 H. Review Underthe Unfunded Mandates Refonn Act of 1995 I. Review Under the Treasury and General GovernmentAppropriations Act, 1999 

### J. ReviewUnder Executive Order 13211 VII. Public Comment A. Written CommentProcedures B. Public WorkshoplHearing 1. Procedure for submitting Request to Speak 2. Conduct ofHearing
I. Introduction Pursuant to section 325 ofthe Energy Policy and Conservation Act (EPCA) (42 U.S.C. 6295) and the Administrative Procedure Act (APA) (5 U.S.C. 553), DOEtoday publishes athree part proposal with regard to energy conservation standards for central air conditioners and central air conditioning heatpumps. First, DOEproposes regulatory provisionsto clarify that section 325(0)(1), which qualifies DOE'srulemaking authority to prescribe amended energy conservation standards, applies as ofan effective date for modifying the Code ofFederal Regulations (CFR) set forth in the notice offinal rulemaking and established consistent withthe Congressional ReviewAct (5 U.S.C. 801-804). Second, in orderto correct arguable legal errors and policy shortcomings, DOEproposes to withdrawthe final rule entitled "Energy Conservation
5 N:lwpdata\aircondilionerruie.ald.wpd June 29. 2001 (3:07PM)

### EE-RM/STD-98-440 - ~ < -3 Program for Consumer Products; Central Air Conditioners and Heat Pump Energy Conservation Standards" which was published in the Federal Register (FR) on January 22, 2001 (61 FR 7170). Third, based on: (1) previous determinations regarding the significance ofpotential energy savings, technological feasibility, and otherfactors; and (2) factual information already in the record, DOE proposes to determine that elevation ofthe currently enforceable central air conditioner and central air conditioning heat pump energy conservation standards by 20 percent is the maximum increase that is economically justified. Consistent with that proposed determination, DOE proposes a Seasonal Energy Efficiency Rating (SEER) of 12 with a corresponding Heating System Performance Factor (HSPF) of7.4 which would apply to manufacturers in 2006.
Today's action partly is a result ofDOE activities under President Bush's Regulatory Review Plan. Pursuant to that plan, DOE conducted an internal review ofthe three final rules issued under section 325 ofEPCA that DOE published at the end ofthe Clinton Administration, including final rules concerning energy conservation standards for clothes washers, water heaters, and central air conditioners and central air conditioning heat pumps. Consistent with the EPCA criteria for determining whether a standard level is economically justified under section 325 (42 U.S.C. 6295(o)(2)(B)), DOE examined each ofthese rules to determine, among other things, whether the rulemaking record was complete and whether the affirmative determination of economic justification was based on adequate findings with regard to the statutorily required considerations that make up the test ofeconomicjustification.

N \wpdata3airconditionerruleatd.wpd 

### 6 June 29, 2001 (3:07PM) Program for Consumer Products; Central Air Conditioners and Heat Pump Energy Conservation Standards" which was published in the Federal Register (FR) on January 22, 2001 (61 FR 7170). Third, based on: (1) previous determinations regarding the significance ofpotential energy savings, technological feasibility, and otherfactors; and (2) factual information already inthe record, DOE proposes to determine that elevation ofthe currently enforceable central air conditioner and central air conditioning heatpump energy conservation standards by 20 percent is the maximum increasethat is economicallyjustified. Consistent with that proposed determination, DOE proposes a Seasonal Energy Efficiency Rating (SEER) of 12 with a corresponding Heating System Performance Factor (HSPF) of7.4 which would apply to manufacturers in 2006.
Today's actionpartly is a result ofDOE activities under President Bush'sRegulatory Review Plan. Pursuant to thatplan, DOE conducted an internal review ofthe three fmal rules issued under section 325 ofEPCAthatDOE published at the end ofthe Clinton Administration, including final rules concerning energy conservation standards for clothes washers, waterheaters, and central air conditioners and central air conditioning heat pumps. Consistent with the EPCA criteria for determining whether a standard level is economicallyjustifiedunder section 325 (42 U.S.C. 6295(0)(2)(B)), DOE examined each ofthese rules to determine, among otherthings, whetherthe rulemaking record was complete and whetherthe affirmative determination of economicjustificationwas based on adequate findings with regard to the statutorily required considerations that make upthe test ofeconomicjustification.

6 N.\wpdata'.airconditionerrule.atd.wpd June 29, 2001 (3:07PM)

### EE-RM/STD-98-440- # <<3.: 

### While DOE examined the three appliance energy conservation standards rulemakings under the President's Regulatory Review Plan, DOE received petitions for reconsideration for each final rule. In addition, DOE received notice that the Gas Appliance Manufacturers Association (with regard to the water heater rule) and the Air-Conditioning and Refrigeration Institute (ARI) (with regard tothe central air conditioner rule) filed petitions forreview in the United States Court ofAppeals for the Fourth Circuit.

While DOE did not seek public comment as part ofthe internal review conducted under the President's Regulatory Review Plan or with regard to the petitions for reconsideration, DOE received written statements in opposition to reconsideration ofeach ofthe three final rules. DOE also had an informal meeting with representatives ofvarious environmental advocacy groups who had already filed statements opposing reconsideration ofthe water heater andthe central air conditioner final rules.
Ultimately, DOE decided that neither the clothes washer rule nor the water heater rule warranted further rulemaking action and denied the related petitions for reconsideration. See 66 FR 19714 (April 17, 2001). With regard to central air conditioners and central air conditioning heat pumps, DOE concluded that ARI had raised substantial questions as to the legal sufficiency ofthe January 22, 2001 final rule and that the interests of justice therefore dictated that DOE further postpone the rule's effective date in light ofthe pendency ofARI's petition forjudicial review in the Fourth Circuit and its related petition for reconsideration. 66 FR 20191 (April 20, 2001). At that time DOE indicated that it would likely resolve these issues through supplemental
N:\wpdtaa\airconditionerule.atd wpd 7 June 29, 2001 (3:07PM) EE-RM/STD-98-440- 

# if**t9~~~** 

# . WhdeDOE examined the three appliance energy conservation standards rulemakings under the President's Regulatory Review Plan, DOE received petitions for reconsideration for each final rule. In addition, DOEreceived notice thatthe Gas Appliance Manufacturers Association (with regard to the waterheaterrule) and the Air-Conditioning and Refrigeration Institute (ARI) (with regard to the central air conditionerrule) filed petitions for review inthe United States CourtofAppeals for the Fourth Circuit.

While DOE did not seekpublic comment as part ofthe internal review conducted under the President'sRegulatory ReviewPlan orwith regard to the petitions for reconsideration, DOE received written statements in opposition to reconsideration ofeach ofthethree final rules. DOE also had an informal meeting with representatives ofvarious environmental advocacy groups who had already filed statements opposing reconsideration ofthe waterheater and the central air conditioner final rules.
Ultimately, DOE decided that neitherthe clothes washerrule northe water heater rule warranted further rulemaking action and denied the related petitions for reconsideration. See 66 FR 19714 (April 17, 2001). With regard to central air conditioners and central air conditioning heat pumps, DOE concluded that ARI had raised substantial questions as to the legal sufficiency ofthe January 22, 2001 final rule and that the interests of justicetherefore dictated that DOE further postpone the rule's effective date in light ofthe pendency ofARI'spetition forjudicial reviewinthe Fourth Circuit and its related petition for reconsideration. 66 FR20191 (April 20, 2001). At that time DOE indicated that it would likely resolve these issues through supplemental
7 N:I
....-pdalalaircondilionerrule.atd
.....-p<! June 29. 2001 (3:07PM)

### ruile:aking that would be forthcoming shortly. EE-RM/STD-98-440 -if

For the reasons discussed in section III ofthis notice, DOE has now concluded that the January 22, 2001 final rule should be reconsidered and therefore grants ARI's petition. In particular, DOE is ofthe view that: (1) DOE should have invited the Department ofJustice to submit a supplemental determination on the potential anti-competitive impact; (2) the statement ofbasis for the final rule did not sufficiently explain DOE's consideration ofcumulative burden attributable to other Federal agencies' and State regulatory actions, which was necessary to DOE's conclusion regarding the potential impact ofthe final rule on manufacturers; and (3) DOE gave inadequate weight to the potential impact ofhigher installation and equipment costs on
some types ofconsumers and to potential burdens on manufacturers.

DOE recognizes that its conclusion that the January 22, 2001 final rule was questionable on legal and policy grounds and the initiation oflitigation in the Fourth Circuit has left less than ideal options for a rulemaking that, had it been concluded ontime, would have been final on January 1, 1994 (42 U.S.C. 6295(d)). IfDOE were to allow the January 22, 2001 final rule to become effective, there isa significant possibility ofa court ordered remand for further consideration. The length oftime it would take to deal with consequences ofa court ordered remand would be substantial. It wasjust this sort ofconsideration that motivated Congress to enact the 1987 amendments to EPCA that require this rulemaking. As the legislative history of those amendments makes clear, an underlying legislative purpose was to cure the problem of indefinite delay that followed the decision in Natural Resources Defense Council v. Herrington 8 N:\wpdata\airconditionerrule.atdwpd 8 June 29, 2001 (3:07PM) mie(tlaking that would be forthcoming shortly.

Forthe reasons discussed in section III ofthis notice, DOEhas now concluded that the January 22, 2001 final rule should be reconsidered and therefore grants ARI'spetition. In particular, DOE is ofthe viewthat: (1) DOE should have invitedthe DepartmentofJustice to submit a supplemental determination onthe potential anti-competitive impact; (2) the statement ofbasis for the final rule did not sufficiently explain DOE'sconsideration ofcumulative burden attributable to other Federal agencies' and State regulatory actions, which was necessary to DOE'sconclusionregarding the potential impact ofthe final rule on manufacturers; and (3) DOE gave inadequate weight to the potential impact ofhigher installation and equipment costs on
some types ofconsumers and to potential burdens on manufacturers.

DOE recognizes that its conclusion that the January 22, 2001 final rule was questionable
on legal and policy grounds and the initiation oflitigation in the Fourth Circuit has left less than ideal options for arulemaking that, had itbeen concluded ontime, wouldhavebeenfinal on January 1, 1994 (42 U.S.C. 6295(d». IfDOE were to allowthe January 22, 2001 final rule to become effective, there is a significantpossibility ofa court ordered remand for further consideration. The length oftime it would take to deal with consequences ofa court ordered remand wouldbe substantial. Itwasjustthis sort ofconsiderationthatmotivated Congressto enactthe 1987 amendments to EPCA that require this rulemaking. As the legislative history of those amendments makes clear, an underlying legislativepurpose was to cure the problem of indefinite delay that followed the decision in Natural Resources Defense Council v. Herrington 8 N:lwpdatalairconditionerrule.atd.wpd June 29. 2001 (3:07PM)

### EE-RM/STD-98-440

- 

### cf3 768 F.2d 1355 (D.C.Cir. 1985) which vacated and remanded an appliance energy conservation standards rulemaking. See S. Rep. No. 100-6, 100'h Cong, 1st

### Sess., 4 (1987) and H.R. Rep. No. 100-11, 100 h 

### ' Cong., 1s' 

### Sess., 28 (1987). DOE also recognizes that, given the opposition to reconsideration, there is a near certainty ofa lawsuit challenging DOE's further rulemaking actions. However, since litigation appears to be inevitable regardless ofwhat option DOE chooses, DOE has concluded that thebetter course is to reopen the rulemaking record on issues regarding economicjustification withthe objective ofpublishing, after considering public comments, a final rule, as soon as possible in 2001.

II.Authority to Reconsider the January22, 2001, Final Rule In reviewing the January 22, 2001 final rule under the President's Regulatory Review Plan, and in considering ARI's petition for reconsideration and the statement in opposition to it, DOE has had the occasion to construe and apply theprovisions of section 325(o)(1) ofEPCA for the first time since they were added to EPCA by the National Appliance Energy Conservation Act of 1987 (NAECA) (Pub.L. 100-12). In relevant part, section 325(o)(1) ofEPCA provides as follows: The Secretary may not prescribe any amended standard which increases the maximum allowable energy use,... or decreases the minimum required energy efficiency, ofa covered product.
42 U.S.C. 6295(o)(1). In its petition for reconsideration, ARI said the following about section 325(o)(1):

We note that the provision in EPCA that prohibits decreasing the minimum required energy efficiency ofcovered products, 42 U.S.C. 562(o)(1)[sic], is
„9 "''"""",~N:\wpdata\airconditionerrle.atd.wpd 

### 9 June 29, 2001 (3:07PM) · .'. I') ")**~** EE-RM/STD-98-440 - 

# IF**~-~** 768 F.2d 1355 (D.C.Cir. 1985) which vacated andremanded an appliance energy conservation standards rulemaking. See S. Rep. No. 100-6, 100th Cong, pI Sess., 4 (1987) and H.R. Rep. No. 100-11, 100th Cong., pISess., 28 (1987). DOE also recognizes that, giventhe oppositionto reconsideration, there is a nearcertainty ofa lawsuit challenging DOE'sfurther rulemaking actions. However, since litigation appears to be inevitable regardless ofwhat option DOE chooses, DOEhas concludedthatthebettercourse is to reopenthe rulemaking record onissues regarding economicjustificationwiththe objective ofpublishing, after consideringpublic comments, a final rule, as soon as pOssible in 2001.

II. Authority to ReconsidertheJanuary22, 2001, FinalRule In reviewing the January 22, 2001 final rule underthe President's Regulatory Review Plan, and in considering ARI'spetition for reconsideration and the statement in opposition to it, DOE has had the occasionto construe and apply the provisions ofsection 325(0)(1) ofEPCA for the first time since they were added to EPCAby the National ApplianceEnergy Conservation Act of 1987 (NAECA) (Pub.L. 100-12). In relevant part, section 325(0)(1) ofEPCA provides as follows: The Secretary may not prescribe any amended standard which increases the maximum allowable energy use, ... or decreases the minimum required energy efficiency, ofa coveredproduct.
42 U.S.c. 6295(0)(1). In its petition for reconsideration, ARI said the following about section 325(0)(1):

We note that theprovision in EPCA that prohibits decreasing the minimum required energy efficiency ofcovered products, 42 U.S.C. 562(0)(1)[sic], is
9 N:lwpdatalairconditionerrule.atd.wpd June 29, 2001 (3:07PM)EE-RM/STD-98-440 -' 

### c,. ' 

### inapplicable here. 10 SEER isthe minimum required energy efficiency. New efficiency minimumn would not be required under the rule until several years from now (the rule provides for such minimums in 2006). Moreover, the effective date ofthe rule has been suspended, and there is pending litigation challenging the validity ofthe rule. Thus, there has been no final result related to the rulemaking.
ARI Petition, p. 3, n. 2. Referring to the 1987 amendments to EPCA, the environmental advocacy organizations argued that "it is clear that, under NAECA, DOE may not amend the rule to weaken its energy efficiency standards." After quoting from section 325(o)(1), they went on to say: Thus DOE is statutorily precluded from amending the Final Rule to weaken its energy efficiency standards, as ARI requests in its petition. ARI's argument (Petition at footnote 2) that this provision is 'inapplicable' because the rule phases in tighter energy efficiency standards over time, is incorrect
... The 

### timing ofthe phase-in ofthese standards is irrelevant.
Statement in Opposition, p.5. Although the diametrically opposed conclusions reached by ARI and the environmental advocacy organizations' response are clear enough, those conclusions are based on arguments that are too summary to evaluate. DOE's interpretation ofthe statute is set forth below, and DOE invites ARI and the environmental advocacy organizations to reexamine their respective positions and to comment on DOE's analysis and the resulting proposed amendments to 10 CFR Part 430. The starting point for analysis is the text ofthe statute. The critical term in section 325(o)(1) is "minimum required energy efficiency." EPCA does not define this term. However, in context, it is clear that a SEER and an HSPF are benchmarks of"minimum required energy

N:\wpdata\airconditionerule.atd wpd 10 June29, 2001 (3:07PM) EE-RM/STD-98-440 

## .-J#**c::<~:s** inapplicable here. to SEER is the minimum required energy efficiency. New efficiency minimw11 would not be**requir~d** under the rule until**s~vefat** years from now (the rule provides for such minimums in 2006). Moreover, the effective date ofthe rule has been suspended, and there is pending litigation challenging the validity oftherule. Thus, there has beenno final result related to the rulemaking.
ARI Petition, p. 3, n. 2. Referring tothe 1987 amendmentsto EPCA, the environmental advocacy organizations argued that "itis clearthat, underNAECA, DOEmay not amendthe rule to weaken its energy efficiency standards." Afterquoting from section 325(0)(1),they wenton to say: Thus DOE is statutorily precluded from amending the Final Rule to weaken its energy efficiency standards, as ARI requests in its petition. ARI's argument (Petition at footnote 2) that thisprovision is 'inapplicable' because the rule phases in tighter energy efficiency standards overtime, is incorrect.
...The timing ofthe phase-in ofthese standards is irrelevant.
Statement in Opposition, p.5. Although the diametrically opposed conclusions reached by ARI and the environmental advocacy organizations' response are clear enough, those conclusions are based on arguments that are too summary to evaluate. DOE'sinterpretation ofthe statute is set forth below, and DOE invites ARI and the environmental advocacy organizations to reexamine theirrespective positions and to comment onDOE'sanalysis and the resulting proposed amendmentsto 10 CFR Part 430. The starting point for analysis is the text ofthe statute. The critical term in section 325(0)(1) is "minimumrequired energy efficiency." EPCA does not define thisterm. However, in context, it is clearthat a SEER and an HSPF are benchmarks of"minimum required energy

10 N:lwpdatalairconditionerrule.atd.wpd June 29, 2001 (3:07PM)

### EE-RM/STD-98-440 -%tt c^ 

## 3 efficiency" for central air conditioners and central air conditioning heat pumps. See 42 U.S.C. 6295(d)(1) and (d)(2). The key question, however, is which SEER and HSPF represent the "minimum required energy efficiency" for central air conditioners and central air conditioning heat pumps that may not be decreased by an amended standard. Had the new SEER and HSPF set out in the January 22, 2001 final rule been allowed to take effect, but (as therule set forth) been made applicable only to appliances manufactured on or after January 23, 2006, we think this would be a close question. Areasonable argument could be made that the new SEER and HSPF became "required" immediately as to such appliances provided they were manufactured on or after January 23, 2006. Areasonable argument could also be made that the new SEER and HSPF would not be "required" until January 23, 2006, when appliances manufactured after that date would have had to comply with them. We address this question, and other considerations bearing on the answer to it, at greater length below. In fact, however, the January 22, 2001 final rule expressly stated that the amendments it set out to existing standards in the Code ofFederal Regulations would not take effect until 30 days after publication in the Federal Register. Well before that date arrived, on February 2, 2001, DOE postponed that effective date for an additional 60 days. Before that 60-day period had passed, on April 18, 2001, DOE further postponed the amendments' effective date pending the outcome ofpetitions by ARI for reconsideration and forjudicial review. As a result, the new SEER and HSPF, though set out in a final rule, never in any sense achieved the status ofbeing the "required" "minimum energy efficiency" benchmarks. There has never been a single moment under any understanding ofthe word "required" at which any central air conditioner or central air conditioning heat pump, including one manufactured after January
N:\wpdata'airconditionerrule.atd.wpd 1 June 29, 2001 (3:07PM)

EE-RM/STD-98-440

## -~~(~.3 efficiency" for central air conditioners and central air conditioning heat pumps. See 42 V.S.C 6295(d)(I) and (d)(2). The key question, however, is which SEER and HSPF represent the "minimumrequired energy efficiency" for central air conditioners and central air conditioning heat pumps that may not be decreased by an amended standard. Had the new SEER and HSPF setout in the January 22, 2001 final rule been allowed to take effect, but (as therule setforth) beenmade applicable only to appliances manufactured onor afterJanuary 23, 2006, we think this would beaclose question. A reasonable argument could be made that the new SEER and HSPF became "required" immediately as to such appliances providedthey were manufactured on orafter January 23, 2006. A reasonable argument could also be made that the new SEERand HSPF would not be "required"until January 23, 2006, when appliances manufactured after that date would have had to comply with them. We address this question, and otherconsiderations bearing on the answerto it, at greater length below. In fact, however, the January 22, 2001 final rule expressly stated that the amendments it set out to existing standards in the Code ofFederal Regulations would not take effect until 30 days after publication in the Federal Register. Well before that date arrived, on February 2, 2001, DOEpostponed that effective date for an additional 60 days. Before that 60-day period had passed, on April 18,2001, DOE further postponed the amendments' effective date pendingthe outcome ofpetitions by ARI for reconsideration and forjudicial review. As a result, the new SEER and HSPF, though set out in a final rule, never in any sense achieved the status ofbeing the "required" "minimum energy efficiency" benchmarks. There has
neverbeen a single moment under any understanding ofthe word "required" at which any central air conditioner or central air conditioning heat pump, including one manufactured after January
11 N:lwp<iala\aircondilionerrule.ald.wpd June 29. 2001 (307PM)

### EE.RMWSTD-98-440 

# ta3 23, 2006, could even arguably have been legally required to be manufactured in conformity with them. Hence, whatever might have been the case had the January 22 final rule been allowed to take effect, thereby effectuating a change inthe SEER and HSPF standards applicable to central air conditioners and heat pumps manufactured after January 23, 2006, we do not see howthe publication ofa final rulethat would have changed those standards, but was prevented by later agency action from doing so, could possibly establish "minimum required energy efficiency" benchmarks. This interpretation of"minimum required energy efficiency" is reinforced bythe rest of the sentence in section 325(o)(1) ofwhich the phrase is apart. That sentence establishes a limitation on the "amended standards" the Secretary may prescribe. That wording strongly suggests that the "minimum required energy efficiency" levels bel'ow which the Secretary may not go are the ones established by the standards being amended. Because ofthe various actions postponing theeffective date ofthe amendments to the standards itproposed, the January 22, 2001 rulenever actually effectuated any amendment to theprior standards. Therefore, the standards that we now propose to amend are not the ones that would have been in place had the amendments set out in the January 22 rule actually been made. Rather, they are the prior standards (SEER of 10.0 and HSPF of6.8 for split systems manufactured after January 1, 1992, SEER of9.7 and HSPF of6.6 for single package systems manufactured after January 1, 1993), unamended until now by anything, including the never-made-effective amendments set out in the January 22, 2001 rule. In our view,the foregoing analysis establishes that EPCA is unambiguous on the question ofwhether standards that are published in the Federal Register, but not yet effective, represent

«,-.~~ 

### ~~12 .:~N:\wodata\airconditionerruleatd wpd 12 June 29, 2001 (3:07PM) 

### EE_RM/STD-98-440

# --JF**~3** 23, 2006, could even arguably have been legally required to be manufactured in conformity with them. Hence, whatevermighthave beenthe case had the January 22 final rule been allowed to take effect, thereby effectuating a change inthe SEERand HSPF standards applicable to central air conditioners and heatpumpsmanufactured afterJanuary 23, 2006, wedo not see how the publicationofa final rule that would have changedthose standards, butwasprevented by later agency actionfrom doing so, couldpossibly establish "minimumrequired energy efficiency" benchmarks. This interpretation of"minimum required energy efficiency" is reinforced by the rest of the sentence in section 325(0)(1) ofwhich the phrase is a part. That sentence establishes a limitation on the "amended standards" the Secretary may prescribe. That wording strongly suggests that the "minimum required energy efficiency" levels below which the Secretary may not go are the ones established by the standards being amended. Because ofthe various actions postponing the effective date ofthe amendments to the standards it proposed, the January 22, 2001 rule never actually effectuated any amendment to the prior standards. Therefore, the standards that we nowpropose to amend are not the ones that would have been in place had the amendments set out in the January 22 rule actually been made. Rather, they are the prior standards (SEER of 10.0 and HSPF of6.8 for split systems manufactured after January 1, 1992, SEER of9.7 and HSPF of6.6 for single package systems manufactured afterJanuary 1, 1993), unamendeduntil nowby anything, including the never-made-effective amendments set out in the January 22, 2001 rule. In ourview, the foregoing analysis establishesthat EPCA is unambiguous on the question ofwhether standards that are published in the Federal Register, but not yet effective, represent 12 N:\wpdata\airconditionerrule.atd.wpd June 29. 2001 (3'07PM)

### EE-RM/STD-98-440-$A 

### y3. tie "minimum required energy efficiency" for central air conditioners and central air conditioning heat pumps. Clearly, the standards set out in the January 22, 2001 notice offinal rulemaking cannot be the "minimum required energy efficiency" benchmarks for purposes of section 325(o)(1). There remains then the question whether the term "minimum required energy efficiency" means a final rule, prescribing an amended energy conservation standard, which is effective under the "EFFECTIVE DATE" section ofthe notice offinal rulemaking or a final rule which is currently enforceable under the terms ofthe rule. In DOE's view, section 325(o)(1) should be construed and applied to allow the Secretary
an opportunity promptly to correct legal and policy errors in a notice offinal rulemaking and to provide relative certainty for manufacturers who mustplan and makethe expenditures necessary to comply with an amended energy conservation standard when itbecomes enforceable. Prompt correction oferror will sometimes avoid litigation. Relative certainty for reliance purposes is an important consideration because the time to develop new products is often a multi-year endeavor and the costs are substantial. DOE believes that this resolution ofthe ambiguities in the statute is consistent with the statute's text, structure, legislative history, and the fundamental policy choices itmakes. We believe that on balance this approach better accomplishes the statute's objectives than either reading thephrase "minimum required energy efficiency" to encompass only energy efficiency standards as ofthe date upon which manufacturers have to comply with those standards or establishing a set ofprocedures that will have the effect ofpreventing the Secretary, within a short period afterpublication ofa final rule that would modify such standards, from correcting defects in them that subsequently come to his attention.

.1~~~ -~~3 

### ~N:\wpdata\airconditionermle atd wpd 1 3 June 29, 2001 (3:07PM) EE-RM/STD-98-440-1F

# ~~3 

# . the "minimum required energy efficiency" for central air conditioners and central air conditioning heat pumps. Clearly, the standards set out in the January 22, 2001 notice offinal rulemaking cannotbe the "minimumrequired energy efficiency" benchmarks for purposes of section 325(0)(1). There remains then the question whetherthe tenn "minimumrequired energy efficiency" means a final rule, prescribing an amended energy conservation standard, which is effective underthe "EFFECTIVE DATE" section ofthe notice offinal rulemaking ora final rule which is currently enforceable underthe tenns ofthe rule. In DOE'sview, section 325(0)(1) should be construed and applied to allowthe Secretary
an opportunity promptly to correct legal and policy errors in a notice offinal rulemaking and to provide relative certainty for manufacturers who mustplan and make the expenditures necessary to comply with an amended energy conservation standard when itbecomes enforceable. Prompt correction oferror will sometimes avoid litigation. Relative certainty for reliance purposes is an important considerationbecausethe time to develop new products is often a multi-year endeavor and the costs are substantial. DOE believes that this resolution ofthe ambiguities in the statute is consistent with the statute'stext, structure, legislative history, and the fundamental policy choices it makes. We believe that on balance this approachbetter accomplishes the statute's objectives than either reading the phrase "minimumrequired energy efficiency" to encompass only energy efficiency standards as ofthe date upon which manufacturers have to comply with those standards or establishing a set ofprocedures that will have the effect ofpreventingthe Secretary, within a shortperiod afterpublication ofa final rule that would modify such standards, from correcting defects in them that subsequently come to his attention.
13 N:lwpdata\airconditionerrule.atd.wpd June 29, 2001 (3:07PM)

### EE-RM/STD-98-440

- 

## cS The former view

- that a standard is only covered by section 325(o)(1) after manufacturers are required to comply with it

- does at first blush appear to be the most natural reading ofthe phrase. This view, however, is in tension with the rest ofthe sentence, which, as explained above, suggests that the relevant point ofcomparison is the standard being amended, regardless ofwhether manufacturers actually have to comply with it. Moreover, ifadopted, this view would allow the Secretary to change the energy efficiency standards right up to the minute before the compliance date. This seems to slight important reliance interests given significant weight in other respects by EPCA's provisions on central air conditioner standards. For example, section 325(d) provides that with respect to central air conditioners, any amended standard contained in a final rule published on January 1, 1994 can apply only to products manufactured on or after January 1, 1999. It similarly provides that any amended standard contained in a final rule published between January 1, 1994 and January 1,2001 can apply only to products manufactured on or after January 1,2006. The purpose ofthese delays is plainly to give manufacturers a significant amount oftime to develop and manufacture new products after a
new standard is adopted but before itbecomes enforceable, thereby greatly diminishing the costs imposed by new standards. These delays also strongly suggestthat a change ofstandard on the
eve ofthe manufacture ofa product would be quite disruptive

- which stands to reason given the lead-time necessary to be in a position to manufacture a compliant product. Thus, to allow a standard to be blocked at the last minute before the compliance deadline would potentially leave
a rather large residual uncertainty difficult to reconcile with the central purpose ofestablishing a climate ofregulatory stability served by these closely related portions ofEPCA. The legislative history ofsection 325(o)(1), although sparse, also suggests that this
N:\wpdata\airconditionerrule.atd.wpd 

### 14 June 29, 2001 (3:07PM) 

### EE-RM/STD-98-440-

## -U:-d?~

# ,.3 The fonner view

- that a standard is only covered by section 325(0)(1) after manufacturers are required to comply with it

- does at first blush appearto be the most natural reading ofthe phrase. This view, however, is in tension with the rest ofthe sentence, which, as explained above, suggeststhat the relevant point ofcomparison is the standard being amended, regardless ofwhether manufacturers actually have to comply with it. Moreover, ifadopted, this view would allowthe Secretary to changethe energy efficiency standards right up to the minute before the compliance date. This seemsto slight important reliance interests given significant weight in otherrespects by EPCA'sprovisions on central air conditioner standards. For example, section 325(d)providesthat withrespect to central air conditioners, any amended standard contained in a final rule published on January 1, 1994 can apply only to products manufactured on or after January 1, 1999. Itsimilarly provides that any amended standard contained in a final rule published between January 1, 1994 and January 1, 2001 can apply only to products manufactured on orafter January 1,2006. The purpose ofthese delays is plainlyto give manufacturers a significant amount oftime to develop and manufacture newproducts after a
new standard is adopted but before it becomes enforceable, thereby greatly diminishing the costs imposed by new standards. These delays also strongly suggestthat a change ofstandard on the
eve ofthe manufacture ofaproduct would be quite disruptive

- which stands to reason given the lead-time necessary to be in apositionto manufacture a compliantproduct. Thus, to allow a standard to be blocked atthe last minute beforethe compliance deadline wouldpotentially leave
a rather large residual uncertainty difficult to reconcile with the centralpurpose ofestablishing a climate ofregulatory stability served by these closely related portions ofEPCA. The legislative history ofsection 325(0)(1), although sparse, also suggests that"this
14 N:lwpdatalairconditionerrule.atd.wpd June 29, 2001 (307PM)

### EE-RM/STD-98-440-- ~ -3 " 

### ,' interpretation is incorrect. It suggests that section 325(o)(1) itself was in fact also intended in significant measure to promote regulatory certainty

- a goal it would not achieve very effectively, given the importance ofsuch certainty not only atthe time ofmanufacture but well before manufacture has begun, iftheprovision is interpreted to apply to a standard only after the compliance date for that standard has passed. The only significant information in section 325(o)(1)'s history appears in the committee reports which comment on identical bill language that was ultimately enacted without change. In the Senate bill, the language that became section 325(o)(1) was denominated new section 325(j). The Senate report says the following about that new section: New section 325(j) establishes the criteria by which the Secretary may prescribe new or amended standards. The Secretary may not increase the maximum allowable energy use or decrease the minimum required energy efficiency ofa covered product.
Senate Report No. 100-6 at p.8. That statement paraphrases the bill language without shedding any light on what the language was supposed to mean. By contrast, the House report does add to our understanding by identifying at least what the House committee thought the purpose ofthe bill language was. In describing that language, which appears in new section 325(1)(1) ofthe House bill, the House report states: DOE may not prescribe an amended standard that increases the maximum allowable energy use or decreases the minimum required energy efficiency ofa covered product. The purpose ofthis requirement is to prevent the Secretary from weakening any energy conservation standard for a covered product, whether established in this Act or subsequently adopted. This serves to maintain a climate ofrelative stability with respect to future planning by all interested parties...

*15 ^Is~~~~~~ N:\wpdata\aircon ditionerule atd.wpd 15 June 29, 2001 (3:07PM)



### EE-RM/STD-98-440--ir

### cR~3 

# . interpretation is incorrect. It suggests that section 325(0)(1) itself was in fact also intended in significant measure to promoteregulatory certainty - a goal it would not achieve very effectively, given the importance ofsuch certainty not only at the time ofmanufacture butwell before manufacture has begun, ifthe provision is interpreted to apply to a standard only afterthe compliance date for that standard haspassed. The only significant infomlation in section 325(0)(1)'shistory appears in the committee reports which comment onidentical bill language that was ultimately enacted without change. In the Senate bill, the language that became section 325(0)(1) was denominated new section 3250). The Senate report says the following aboutthat new section: New section 3250)establishesthe criteriaby which the Secretary may prescribe new or amended standards. The Secretary may not increase the maximum allowable energy use ordecrease the minimum required energy efficiency ofa coveredproduct.
Senate Report No.100-6 at p.8. That statement paraphrasesthe bill language without shedding any light on what the language was supposed to mean. By contrast, the House report does add to ourunderstanding by identifying at least what the House committee thought the purpose ofthe bill language was. In describing that language, which appears in new section 325(1)(1) ofthe House bill, the House report states: DOE may not prescribe an amended standard that increases the maximum allowable energy use or decreases the minimum required energy efficiency ofa covered product. Thepurpose ofthis requirement is to preventthe Secretary from weakening any energy conservation standard for a covered product, whetherestablished in this Actor subsequently adopted. This serves to maintain a climate ofrelative stability with respect to future planning by all interestedparties
...

15 N:\wpdara\aircondirionerrule.ard.wpd June 29. 200I (3 :07PM)

### EE-RM/STD-98-440 -#-,6 , . House Report No. 100-11 at p. 22. Since the Senate report differs from the House report and no conference committee report exists; the House report language does not represent the views ofthe Congress as a whole. Therefore, that language should be used cautiously as a contributory factor in construing section 325(o)(1) and framing implementing regulations. The House report language indicates that the term "minimum required energy efficiency" includes both the legislated standards established by Congress in 1987 and amended standards "subsequently adopted." However, the word "adopted" is not aterm that is used in EPCA or the APA. As applied to the sequence ofsteps that make up the rulemaking process, it is unclear which step is deemed to be the moment that an amended standard is "adopted." More instructive is the sentence from the House report that states with regard to the underlying purpose ofsection 325(o)(1): "This serves to maintain a climate ofrelative stability with respect to future planning by all interested parties. . ." This suggests, as noted above, that section 325(o)(1) was specifically expected, at least in the view ofthe House Committee, to act harmoniously with the otherprovisions ofEPCA discussed above in facilitating regulatory certainty. The latter purpose is accomplished far better by construing the provision to become applicable at a point well before the compliance date. On the other hand, the reliance interests at stake also are not best served in the long run by taking the opposite course and adopting the view that section 325(o)(1) becomes applicable at the earliest possible moment. Let us imagine, for example, that DOE were routinely to make final rules containing standards potentially subject to section 325(o)(1) effective as soon aspossible afterpublication. This would likely result in its making such rules effective 30 days after

«~~~ 

### ~~~16 ^ 

### ~N:\wpdata\airconditionemrule.atd wpd 16 June 29, 2001 (3:07PM) EE-RM/STD-98-440

### -#-C?~,3 

## . House Report No. 100-11 at p. 22. Since the Senate report differs from the House report and no conference committeereport exists; the House report language does not represent the views ofthe Congress as a whole. Therefore,that language should be used cautiously as a contributory factor in construing section 325(0)(1) and framing implementing regulations. The House report language indicates thatthe term "minimumrequired energy efficiency" includesboththe legislated standards established by Congress in 1987 and amended standards "subsequently adopted." However, the word "adopted"is not a term that is used in EPCA orthe AP A. As applied to the sequence ofsteps that make up the rulemaking process, it is unclear which step is deemed to be the momentthat an amended standard is "adopted." More instructive is the sentence from the House report that states with regard to the underlying purpose ofsection 325(0)(1): "This servesto maintain a climate ofrelative stability with respect to future planning by all interestedparties
..." This suggests, as noted above, that section 325(0)(1) was specifically expected, at least in the view ofthe House Committee, to act harmoniously with the otherprovisions ofEPCA discussed above in facilitating regulatory certainty. The latter purpose is accomplished far betterby construing the provisionto become applicable at a point well before the compliance date. On the otherhand, the reliance interests at stake also are not best served in the long run by taking the opposite course and adopting the viewthat section 325(0)(1)becomes applicable at the earliestpossible moment. Let us imagine, for example, that DOE were routinely to make final rules containing standards potentially subject to section 325(0)(1) effective as soon as possible afterpublication. This would likely result in its making suchrules effective 30 days after

16 N:\wpdatalairconditionerrule.atd.wpd June 29, 2001 (307PM)

### EE-RM/STD-98-440--~ # -3 publication.' DOE also could refuse to reconsider any aspect ofsuch arule relevant to the standard (unless it could complete its consideration and correct any errors within that 30-day time period), no matter how serious or legitimate a question might be raised, since to do so effectively, it would have to prevent the standard from going into effect. This approach, however, would notbe the best way forDOE to promote regulatory certainty either. It is common for agencies to entertain petitions for reconsideration at least for a short period after issuance ofa final rule as well asto correct errors on their own motion during that time. Moreover, there is good reason why agencies follow this course, since otherwise such
errors would have to await the completion of judicial reviewbefore they couldbe corrected, thereby creating substantial delay and uncertainty. Accordingly, this approach too, in addition to running counter to ordinary administrative practices that there is no reason to believe section 325(o)(1) was intended to abrogate, isnot the best way to advance the regulatory stability sought by section 325(o)(1) and the other related EPCA provisions discussed above. This approach also would create unnecessary tension between section 325(o)(1) and the Congressional Review Act (CRA) (5 U.S.C. 801-804) enacted in 1996. Under CRA, before a final rule can become "effective," DOE must send a report to Congress (5 U.S.C. 801(a)(1)(A) and (B)). With respect to a "major rule" within the meaning of5 U.S.C. 804(2), CRA provides for thepassing ofa 60-calendar-day-lie-before-the-Congress period, after submission ofthe agency report, atthe end ofwhich a final rule could become effective in the absence ofa Congressional resolution ofdisapproval (5 U.S.C. 801(a)(3)). CRA allows for an exception to the 60-day-lie-before requirement only ifthe President determines that a major rule should take effect
'Under the APA in most cases it could not make them effective before then. N:\wpdata\airconditionerrule atd wpd 17

'June 29. 2001 (3:07PM)



### EE-RM/STD-98-44o-jl

## cR~

# _3
. publication.' DOE also could refuse to reconsider any aspect ofsuch a rule relevant to the standard (unless it couldcomplete its consideration and correct any errors within that 30-day time period), nomatterhowserious orlegitimate a question might be raised, since to do so effectively, it wouldhave to preventthe standard from going into effect. This approach, however, would not bethe best way for DOEto promote regulatory certainty either. 

### Itis common for agencies to entertainpetitions for reconsideration at least for a shortperiod afterissuance ofa final rule as well as to correcterrors ontheirownmotion during that time. Moreover, there is good reason why agencies followthis course, since otherwise such
errors wouldhave to awaitthe completion of judicial reviewbeforethey couldbecorrected, thereby creating substantial delay and uncertainty. Accordingly, this approach too, in addition to running counterto ordinary administrative practices that there is no reason to believe section 325(0)(1) was intendedto abrogate, is not the best way to advance the regulatory stability sought by section 325(0)(1) and the other related EPCA provisions discussed above. This approach also would create unnecessary tensionbetween section 325(0)(1) and the Congressional ReviewAct (CRA) (5 U.S.c. 801-804) enacted in 1996. Under CRA, before a final rule can become "effective,"DOE must send a report to Congress (5 U.S.c. 801(a)(1)(A) and (B». With respectto a "majorrule" within the meaning of5 U.S.c. 804(2), CRAprovides for the passing ofa 60-calendar-day-lie-before-the-Congressperiod, after submission ofthe agency report, at the end ofwhich a final rule could become effective in the absence ofa Congressional resolution ofdisapproval (5 U.S.c. 801(a)(3». CRA allows for an exception to the 60-day-lie-before requirement only ifthe President determines that a major rule should take effect
·Underthe APA in most cases it could not make them effective before then. 17 N:lwpdatalairconditionerruleatd wpd June 29, 2001 (3:07PM)

### EE-RM/STD-98-440-# :-" 3 . before the end ofthat period because ofan imminent health or safety threat or other emergency; because it is necessary to the enforcement ofcriminal laws or national security; or ifit is issued pursuant to a statute implementing an international trade agreement (5U.S.C. 801(c)). In DOE's view, this last set ofconsiderations also points the way tothe answer tothe question ofat what time amendments to an energy-efficiency-setting-standard should bestbe viewed as having set "minimum required energy efficiency" benchmarks. Forthe reasons explained at the beginning ofthis section, that time must be after the final rule making the amendments tothe standard is in effect. But, consistent with the objective ofsection 325(o)(1) and the other closely related EPCA provisions ofpromoting regulatory certainty, and to harmonize section 325(o)(1) with common administrative practice andthe CRA, such final rules should ordinarily be made effective only after areasonable hiatus after the date ofpublication has elapsed, allowing for prompt use ofordinary administrative error correction procedures and completion ofcongressional review under CRA. This is the earliest that manufacturer planning in reliance on a final major rule to amend appliance energy conservation standards can realistically be expected tobegin. The certainty ofthe regulatory regime sought to be achieved therefore cannot occur until thattime. Accordingly, DOE believes it should construe section 325(o)(1) as applying to standards designed to set "minimum required energy efficiency" benchmarks atthe point in time a final rule containing such a standard becomes effective. It also believes, however, that it should take care to select effective dates for final rules containing such standards that are consistent with the CRA and any other applicable law. This approach will best promote the regulatory certainty sought by section 325(o)(1) and its companion provisions and also comports well with the ordinary
N:\wpdata\airconditionerrule.atdwpd 18 June 29, 2001 (3:07PM)

## EE.RM/STD.98-440-#~,~3 , before the end ofthat periodbecause ofan imminenthealth or safety threat or other emergency; because it is necessary tothe enforcement ofcriminal laws ornational security; or if

### itis issued pursuant to a statute implementing an international trade agreement (5 U.S.C. 80I(c)). In DOE'sview, this last set ofconsiderations also points the way to the answerto the question ofat what time amendments to an energy-efficiency-setting-standard should bestbe viewed ashaving set "minimumrequired energy efficiency" benchmarks. Forthereasons explained at the beginning ofthis section, that time mustbe afterthe final rule making the amendmentstothe standard isineffect. But, consistent with the objective ofsection 325(0)(1) and the other closely related EPCAprovisions ofpromoting regulatory certainty, and to harmonize section 325(0)(1) with commonadministrative practice andthe CRA, suchfinal rules should ordinarily be made effective only after a reasonable hiatus'after the date ofpublicationhas elapsed, allowing for prompt use ofordinary administrative error correction procedures and completion ofcongressional review under CRA. This is the earliestthat manufacturerplanning in reliance on a final majorrule to amend appliance energy conservation standards can realistically be expected to begin. The certainty ofthe regulatory regime soughtto be achieved therefore cannot occuruntil thattime. Accordingly, DOEbelieves it should construe section 325(0)(1) as applyingto standards designed to set "minimum required energy efficiency"benchmarks at the point in time a final rule containing such a standardbecomes effective. Italso believes, however, that it should take care to select effective dates for final rules containing such standards that are consistent with the CRA and any other applicable law. This approach will best promote the regulatory certainty soughtby section 325(0)(1) and its companion provisions and also comports well with the ordinary 18 N:\wpdata1airconditionerrule.atd.wpd June 29, 2001 (3:07PM)

### EE-RM/STD-98-440-4 #2-,;3 understanding ofwhen a rule containing such standards has established "require[ments]." We note that DOE's own past practice on the selection of such effective dates has not been consistent with this approach. But it also has not been internally consistent even very recently, potentially creating wide variations regarding when section 325(o)(1) would become applicable as well as running afoul ofthe various considerations outlined above. Typically, DOE has not made amendments to EPCA standards contained in final rules effective until the date on which manufacturers have had to comply with them. See 10 C.F.R. 430.32. That is the approach we followed even very recently in the case ofthe rules setting out the amendments to standards for water heaters (66 FR 4474, 4497, Jan. 17, 2001, effective Jan. 20, 2004) and clothes washers (66 FR 3314, 3331, Jan. 12, 2001, effective Jan. 1,2004). We departed from that practice in the case ofthe central air conditioner rule at issue here. We did so, however, not because we had considered the potential ramifications ofour prior approach and of the approach we were taking to thisrule forpurposes ofthe applicability of section 325(o)(1), but rather in an effort to follow the current guidance ofthe Office ofthe Federal Register, which distinguishes between the date on which a final rule is effective for purposes ofmodifying the Code ofFederal Regulations and the date on which a final rule is effective for purposes of requiring compliance with its requirements. See National Archives and Records Administration, Office ofthe Federal Register, Document Drafting Handbook, Chapter 2, p. 2-12 (October 1998). Consistent with the recent guidance in the Document Drafting Handbook, but without taking into account either the CRA or potential section 325(o)(1) ramifications, DOE specified a 30-dayafter-publication effective date consistent with the APA and a compliance date ofJanuary 23, 2006, consistent with EPCA.
N:\wpdata\airconditionerrule.atd.wpd 1

9 June 29, 2001 (3:07PM) 

### EE-RM/STO-9S-440-#

## C:<;;2,_:S understanding ofwhen a rule containing such standards has established "require[ments]." We note that DOE'sown pastpractice onthe selection ofsuch effective dates has not been consistent with this approach. Butit also has not been internally consistenteven very recently, potentially creating wide variations regarding when section 325(0)(1)would become applicable as well as running afoul ofthe various considerations outlined above. Typically, DOEhas not made amendmentsto EPCA standards contained in final rules effective until the date onwhich manufacturers have had to comply withthem. See 10 C.F.R. 430.32. That is the approach we followed even very recently in the case ofthe rules setting out the amendments to standards for waterheaters (66 FR4474,4497, Jan. 17,2001, effective Jan. 20,2004) and clothes washers (66 FR3314,3331,Jan. 12,2001,effective Jan. 1,2004). We' departed from that practice in the case ofthe central air conditioner rule at issue here. We did so, however, not because we had considered the potential ramifications ofour prior approach and of the approach we were taking to this rule for purposes ofthe applicability ofsection 325(0)(1), but rather in an effort to follow the current guidance ofthe Office ofthe Federal Register, which distinguishes between the date on which a final rule is effective for purposes ofmodifying the Code ofFederal Regulations and the date onwhich a final rule is effective for purposes of requiring compliance with its requirements. See National Archives and Records Administration, Office ofthe Federal Register, Document Drafting Handbook, Chapter 2, p. 2-12 (October 1998). Consistent withthe recent guidance inthe Document Drafting Handbook, but without taking into account eitherthe CRA orpotential section 325(0)(1) ramifications, DOE specified a 30-dayafter-publication effective date consistent with the APA and a compliance date ofJanuary 23, 2006, consistent with EPCA. 19 N:lwpdatalairconditionenule.atd.wpd June 29, 2001 (3:07PM)

### EE.RM/STD-98-440 -O > Having now considered these issues more carefully, DOE believes it should adopt the approach outlined above which is specifically designed to accomplish the relevant EPCA policy objectives. Accordingly, itproposes to adopt a series ofamendments to the EPCA rules intended to address these general issues. First, itproposes to define by rule the terms "maximum allowable energy use" and "minimum required energy efficiency" as energy conservation standards established by a final rule that has become effective in the sense that it has modified the Code of Federal Regulations. It further proposes to include in its definition thatto qualify, the final rule has to have made that modification on a date selected consistent with the CRA and other applicable law. Finally, in order to avoid confusion, it proposes a technical amendment adding a definition ofthe EPCA term "effective date," which EPCA, inconsistently with the Office of Federal Register guidance, treats as synonymous with "compliance date." To that end, DOE proposes to add a new section 430.34 which tracks the language of section 325(o)(1). It also proposes to add to the definitions section, section 430.2, new definitions for "maximum allowable energy use" and "minimum required energy efficiency." These definitions would treat amendments to a standard contained in a final rule as establishing "maximum allowable energy use" and "minimum required energy efficiency" benchmarks for purposes ofsection 325(o)(1) on the date such a rule made those amendments effective asto the Code ofFederal Regulations, provided that DOE sets out in the "EFFECTIVE DATE" line ofa notice offinal rulemaking under section 325 a date on which the Code ofFederal Regulations will be modified that is selected consistent with the CRA and any other applicable law. Inmost instances, the date selected will be 60 to 80 days after the date ofpublication. Consistent with the proposed definitions to be added to section 430.34, DOE intends to
^r~~~~~~20\ N:\wpdata\airconditionerrule ad wpd 20 June 29, 2001 (3:07PM) EE-RM/STD-98-440

## -1f0?~

# _-5 Having now considered these issues more carefully, DOE believes it should adopt the approach outlined above which is specifically designed to accomplishthe relevant EPCApolicy objectives. Accordingly, itproposesto adopt a series ofamendmentsto the EPCArules intended to address these general issues. First, 

### itproposesto define byrule the tenns "maximum allowable energy use" and "minimumrequired energy efficiency" as energy conservation standards establishedby a final rule that hasbecome effective inthe sensethat it has modified the Code of Federal Regulations. Itfurther proposesto include in its definition thatto qualify, the final rule has to havemade thatmodification on a date selected consistent with the CRA and other applicable law. Finally, in orderto avoid confusion, itproposes a technical amendment adding a definition ofthe EPCA tenn "effective date," which EPCA, inconsistently with the Office of Federal Register guidance, treats as synonymous with "compliancedate." To that end, DOEproposes to add a new section430.34 which tracks the language of section 325(0)(1). Italso proposesto add to the definitions section, section 430.2, newdefinitions for "maximum allowable energy use" and "minimum required energy efficiency." These definitions would treat amendmentsto a standard contained in a final rule as establishing "maximum allowable energy use" and "minimumrequired energy efficiency" benchmarks for purposes ofsection 325(0)(1) onthe date such a rule made those amendments effective as to the Code ofFederal Regulations, provided that DOE sets out in the "EFFECTIVE DATE" line ofa notice offinal rulemaking under section 325 a date onwhich the Code ofFederal Regulations will be modified that is selected consistentwith the CRA and any other applicable law. In most instances, the date selected will be 60 to 80 days afterthe date ofpublication. Consistent with the proposed definitions tobe added to section 430.34, DOE intends to 20 N:lwpdatalairconditionerrule.atd.wpd June 29. 2001 (3:07PM)

### EE-RM/STD-98-440 -' - . make the final rule based on today's proposal effective 75 days from the date ofpublication. Finally, to make the technical change referenced above, DOE proposes also to add to section 430.2 a definition ofthe term "effective date" as used in EPCA and 10 CFR 430.32. This definition clarifies that forpurposes ofconstruing the term under EPCA (but not for purposes of determining the point atwhich amendments to a standard qualify forprotection under section 325(o)(1)), the "effective date" is the date on which an amended energy conservation standard becomes enforceable.

III.Proposal to Withdraw Final Rule In this portion ofthe SUPPLEMENTARY INFORMATION, DOE sets forth its conclusions with regard to the legal and policy issues that DOE considered in deciding whether to propose withdrawal ofthe January 22, 2001 final rule. Included among these issues are certain issues raised by ARI in its petition for reconsideration.

A. Legal Issues

1. Failure to Obtain the Views ofthe Department ofJustice on the Potential Anti-Competitive Impact of 13 SEER Standards In its petition, ARI contends that DOE should have invited the Department ofJustice to submit a supplemental statement ofits views on the potential anti-competitive impact ofDOE's final rule establishing a 13 SEER standard forcentral air conditioners and heat pumps (ARI Petition Discussion, paragraph d). Although EPCA does not provide that DOE must seek
N:\wpdata\airconditionerrule aidwpd 21 June 29, 2001 (3:07PM) EE-RM/STD-98-440

## -it-~. make the final rule based on today's proposal effective 75 days from the date ofpublication. Finally, to makethe technical change referenced above, DOE proposes also to add to section430.2 a definition ofthe term "effective date" as used in EPCA and 10 CFR430.32. This definition clarifies that for purposes ofconstruing the term under EPCA (but not for purposes of determining the point at which amendments to a standard qualify for protection under section 325(0)(1»,the "effective date" is the date onwhich an amended energy conservation standard becomes enforceable.

III. Proposal to Withdraw Final Rule Inthisportion ofthe SUPPLEMENTARY INFORMATION, DOE sets forth its conclusions withregard to the legal and policy issuesthat DOE considered in deciding whether to propose withdrawal ofthe January 22, 2001 final rule. Included among these issues are certain issues raised by ARI in its petition for reconsideration.

A. Legal Issues

1. Failure to Obtain the Views ofthe Department ofJustice on the Potential Anti-Competitive Impact of 13 SEER Standards In its petition, ARI contends that DOE should have invited the Department ofJustice to submit a supplemental statement ofits views onthe potential anti-competitive impact ofDOE's final rule establishing a 13 SEER standard for central air conditioners and heatpumps CARl Petition Discussion, paragraph d). Although EPCA does not provide that DOE must seek
21 N:lwpdatalairconditionerrule ald.wpd June 29, 2001 (307PM)

### EE-RM/STD-98-440- 

### ' - 3 

### supplemental determinations from the Department ofJustice on final rules, DOE concludes, for reasons set forth below, that it should have requested supplemental views from the Department of Justice on the effect ofauniform 13 SEER standard on competition, particularly on the question ofpotential consolidation in the central air conditioning and heat pump industry. Section 325(o)(2)(B)(i) ofEPCA requires DOE to determine whether the benefits ofa new
or amended energy conservation standard exceed its burdens by considering "to the greatest extent practicable" seven factors, including: "(V) the impact ofany lessening ofcompetition, as determined in writing by the Attorney General, that is likely to result from the imposition ofthe standard" (42 U.S.C. 6295(o)(2)(B)(i)). Section 325(o) also provides that: Forpurposes ofclause (i)(V), the Attorney General shall make a determination ofthe impact, ifany, ofany lessening ofcompetition likely to result from such standard and shall transmit such determination, not later than 60 days after the publication ofa proposed rule prescribing or amending an energy conservation standard, in writing to the Secretary, together with an analysis ofthe nature and extent ofsuch impact. Any such determination and analysis shall be published by the Secretary in the Federal Register.
42 U.S.C. 6295(o)(2)(B)(ii). In context, it is clear that the term "the standard" in section 325(o)(2)(B)(i) refers to any
new or amended energy conservation standard prescribed by DOE under section 325(o) ofEPCA. Because the Department ofJustice must transmit its determination to DOE within 60 days after thepublication ofa proposed rule, EPCA contemplates that the Department ofJustice's determination on the anti-competitive effects ofa proposed rule will enable DOE to fulfill its substantive obligation to consider the Department's expert opinion on the anti-competitive impact ofa final standard. DOE submitted the October 5, 2000 NOPR to the Attorney General for review pursuant to -_~~~~~22 

### ~~N:\wpdata\airconditionenule.atld.pd 22 June 29, 2001 (3:07PM) EE-RM/STD-98-440 

# -11 cAO?3 supplemental determinations from the Department ofJustice on final rules, DOE concludes, for
reasons set forth below, that it should have requested supplemental views from the Department of Justice on the effect ofa uniform 13 SEER standard on competition, particularly onthe question ofpotential consolidation inthe central air conditioning and heatpump industry. Section 325(0)(2)(B)(i) ofEPCA requires DOE to determine whetherthe benefits ofa new
oramended energy conservation standard exceed its burdensby considering "tothe greatestextent practicable" seven**factor~** including: "(V)the impact ofany lessening ofcompetition, as determined inwriting by the Attorney General, thatis likely toresult from the imposition ofthe standard" (42 U.S.C. 6295(0)(2)(B)(i». Section 325(0) also provides that: Forpurposes ofclause (i)(V), the Attorney General shall make a determination ofthe impact, ifany, ofany lessening ofcompetition likely to result from such standard and shall transmit such determination, not laterthan 60 days after the publication ofaproposed rule prescribing oramending an energy conservation standard, in writing to the Secretary, together with an analysis ofthe nature and extent ofsuch impact. Any such determination and analysis shall bepublished by the Secretary in the Federal Register.
42 U.S.C. 6295(0)(2)(B)(ii). In context, it is clearthat the term "the standard" in section 325(0)(2)(B)(i) refers to any
new or amended energy conservation standardprescribed by DOE under section 325(0) ofEPCA. Because the Department ofJustice must transmit its determination to DOE within 60 days after the publication ofa proposed rule, EPCA contemplates that the Department ofJustice's determination on the anti-competitive effects ofa proposed rule will enable DOE to fulfill its substantive obligationto considerthe Department's expert opinion onthe anti-competitive impact ofa final standard. DOE submitted the October 5, 2000 NOPR to the Attorney General for reviewpursuant to 22 N:lwpdatalairconditionerrule.atd.wpd June 29, 200) (307PM)

### EE-RM/STD-98-440 -L7- ' the foregoing provisions. The NOPR described the range ofpotential trial standards considered by DOE, and proposed adoption ofTrial Standard Level 3, i.e., a minimum SEER of 12 for central air conditioner product classes and a SEER of 13 for central air conditioning heat pumps, with a corresponding HSPF of7.7. The Department ofJustice, consistent with its past practice, confined its response to the proposed standards, corresponding to Trial Standard Level 3. The Department ofJustice conveyed to DOE three concerns about the proposed rule's potential impact on competition. First, the Department ofJustice was concerned the proposed rule would have a disproportionate impact on small manufacturers. Second, it was concerned that the proposed standard for heat pumps, and in some instances the standard for air conditioners, would have an adverse impact on some manufacturers ofequipment to be used to retrofit existing housing and used in manufactured housing. Third, it was concerned that theproposed 13 SEER for central air conditioning heat pumps could cause consumers to shift from heat pumps to other systems that include resistance heat systems, reducing the competition that presently exists between manufacturers ofair conditioning heatpumps and manufacturers ofthose otherheating systems. The Department ofJustice urged DOE to take these concerns into account and consider "setting a lower SEER standard for heatpumps, such as the standard included in Trial Standard Level 2, and a lower SEER standard for air conditioners for retrofit markets where there are space constraints and for manufactured housing." 66 FR 7200. DOE published a final rule on January 22, 2001 adopting standards that corresponded to Trial Standard Level 4 (the next higher level) and prescribed a minimum SEER of 13 for all the product classes, except for niche products, with a corresponding 7.7 HSPF. The preamble to the final rule addressed the Department ofJustice's specific concerns aboutthe October 5 proposed
N:\wpdata\airconditionerrule.atdwpd 

### 23 June 29, 2001 (3:07PM) EE.RM/STD-98-440 -

## #~;;'3 

## , the foregoing provisions. TheNOPR described the range ofpotentia) trial standards considered by DOE, and proposed adoption ofTrial Standard Level 3, i.e., a minimum SEERof 12 for central airconditionerproduct classes and a SEERof 13 for central airconditioning heatpumps, with a corresponding HSPF of7.7. TheDepartment ofJustice, consistent with its pastpractice, confined its response to the proposed standards, corresponding to Trial Standard Level 3. The Department ofJustice conveyedto DOE three concerns about the proposedrule's potential impact oncompetition. First, the DepartmentofJustice was concerned the proposed rule would have a disproportionateimpacton small manufacturers. Second, 

### itwas concernedthat the proposed standard for heatpumps, and in someinstances the standard for air conditioners, would have an adverse impact on some manufacturers ofequipmentto be used to retrofit existing housing and used in manufactured housing. Third, it was concerned that the proposed 13 SEER for central air conditioning heat pumps could cause consumers to shift from heatpumps to other systems that include resistance heat systems, reducing the competitionthatpresently exists between manufacturers ofair conditioning heat pumps and manufacturers ofthose otherheating systems. The Department ofJustice urged DOEto take these concerns into account and consider "setting a lower SEER standard for heat pumps, such as the standard included in Trial Standard Level 2, and a lower SEER standard for air conditioners for retrofit markets where there are space constraints and for manufactured housing." 66 FR 7200. DOE published a final rule onJanuary 22, 2001 adopting standards that correspondedto Trial Standard Level 4 (the next higher level) and prescribed a minimum SEER of 13 for all the product classes, except for niche products, with a corresponding 7.7 HSPF. The preamble to the final rule addressed the Department ofJustice's specific concerns aboutthe October 5 proposed
23 N:lwpdatalairconditionerrule.atd.wpd June 29, 2001 (3:07PM)

### EE-RMISTD-98-440 _:< ._ rule (66 FR 7192-93). It also addressed the potential anti-competitive impact of the final rule's uniform 13 SEER standard, in general terms: We recognize that the standard levels we are adopting could accelerate the consolidation trend among major manufacturers. However, as discussed in the manufacturer impact analysis, we donot expect that any manufacturer or group of manufacturers will be able to use the standards as an opportunity to consolidate their market power. (See TSD, Chapter 8). Therefore, we believe that competition will remain vigorous under the adopted standard, and any lessening ofcompetition that does occur will not result in price increases or loss ofchoice and utility for consumers.
66 FR 7176. The TSD referenced chapter also concluded that, under Trial Standard Level 4, several major companies would likely consider selling their production assets rather than make the investment required to meet the new standard or face the loss ofprofits caused bythe absence of premium products in the marketplace (see, TSD 8.7.4, p. 8-64). Thus, DOE simply relied on the manufacturer impact analysis in the TSD to support its conclusion with respect to the potential impact on competition ofthe final rule's Trial Standard Level 4 (13 SEER) standards. DOE did nothave the benefit ofthe Department ofJustice's views on the potential anti-competitive impact ofthe final 13 SEER standards for both air conditioners and heat pumps. As the TSD shows, the central issue regarding the January 22 final rule is the potential effect of 13 SEER standards on consolidation in the central air conditioning and heatpump industry. DOE adverted to this in the preamble to the final rule with the statement "that the standard levels we are adopting could accelerate the consolidation trend among major manufacturers." 66 FR 7176. Arguably, to comply with section 325(o)(2)(B)(i), DOE should have requested supplemental views from the Department ofJustice on this issue.

24 N:\wpdata\airconditionerrule aldwpd 

### 24 June 29, 2001 (3:07PM) EE-RM/STD-9S-440 

# -1f:c9.,.:z3 rule (66 FR 7192-93). Italso addressed the potential anti-competitive impact of the final rule's uniform 13 SEER standard, in general terms: We recognize that the standard levels we are adopting could accelerate the consolidation trend among major manufacturers. However, as discussed inthe manufacturer impact analysis, we do not expectthat any manufacturer orgroup of manufacturers will be able to use the standards as an opportunity to consolidate theirmarketpower. (See TSD, Chapter 8). Therefore, we believe that competition will remain vigorous underthe adopted standard, and any lessening ofcompetition that does occurwill not result inprice increases orloss ofchoice and utility for consumers.
66 FR7176. The TSDreferenced chapter also concludedthat, under Trial Standard Level 4, several major companies would likely consider selling theirproduction assets rather than make the investment required to meetthe new standard or face the loss ofprofits caused by the absence of premium products in the marketplace (see, TSD 8.7.4, p. 8-64).
. Thus, DOE simply relied onthe manufacturer impact analysis in the TSD to support its conclusion with respect to the potential impact on competition ofthe final rule's Trial Standard Level 4 (13 SEER) standards. DOE did nothave the benefit ofthe Department ofJustice's views
onthe potential anti-competitive impact ofthe final 13 SEER standards for both air conditioners and heat pumps. As the TSD shows, the central issue regarding the January 22 final rule is the potential effect of13 SEER standards on consolidation in the central air conditioning and heat pump industry. DOE adverted to this in the preamble to the final rule with the statement ''thatthe standard levels we are adopting could accelerate the consolidation trend among major manufacturers." 66 FR 7176. Arguably, to comply with section 325(0)(2)(B)(i), DOE should have requested supplemental views from the Department ofJustice on this issue.
24 N:lwpdatalairconditionerrule.atd.wpd June 29. 2001 (307PM)

### EE-RM/STD-98-440- -- ,: 3' , 2. Failure ofthe Statement ofBasis for the Final Rule to Adequately Address Cumulative Regulatorv Burdens on Manufacturers To determine whether a standard is economicallyjustified, DOE must assess the economic impact ofthe standard on the manufacturers and consumers oftheproducts subject to such standard (42 U.S.C. 6295(o)(2)(B)(i)(I)). One aspect ofmanufacturer burden isthe cumulative impact ofmultiple DOE standards and the regulatory actions ofother Federal agencies and States that affect the manufacture ofa covered product. In its petition forreconsideration, ARI criticized DOE fornot discussing information in the TSD on the cumulative regulatory burden on the central air conditioning and heat pump industry (ARI Petition Discussion, paragraph m). The preamble to the final rule addressed the issue ofcumulative regulatory burden in conclusory terms in two briefsentences, as follows: "The Department has considered the manufacturer burdens as described in the manufacturer impact analysis ofthe TSD in adopting the new standard. These include cumulative burdens." 66 FR 7174. The statement ofbasis and purpose required bythe APA (5 U.S.C. 553(c)) to accompany a final rule must establish a rational connection between the facts the agency found and the choices it made. In light ofthe evidence ofcumulative regulatory burdens on manufacturers documented in the TSD, it is doubtful whether the mere assertion by DOE that it considered the cumulative burdens on manufacturers is adequate to establish a rational basis for DOE's determination on manufacturer impact resulting from a 13 SEER standard. DOE's discussion and conclusions regarding the weight that should be given to cumulative regulatory burden in this rulemaking are set forth in the "Policy Issues" discussion immediately following this section, and in the preamble to today's proposed rule (see Section V.B.2. ofthis
N:\Npdata\airconditionerule atd.wpd 

### 25 June 29, 2001 (3:07PM)

### EE.RM/STD.98.440-#=-~.;?3 I 2. Failure ofthe Statement ofBasis for the Final Rule to Adequately Address Cumulative Regulatory Burdens on Manufacturers Todetermine whether a standard is economicallyjustified, DOE must assess the economic impactofthe standard onthe manufacturers and consumers ofthe products subject to such standard (42 U.S.C. 6295(0)(2)(B)(i)(I». One aspect ofmanufacturerburden is the cumulative impactofmultiple DOE standards and theregulatory actions ofotherFederal agencies and States that affect the manufacture ofa coveredproduct. In its petition for reconsideration, Am criticizedOOE for not discussing information in the TSD onthe cumulativeregulatory burdenonthe central air conditioning and heat pump industry (ARl Petition Discussion, paragraph m). Thepreambleto the final rule addressed the issue ofcumulative regulatory burden in conclusory terms in twobriefsentences, as follows: "TheDepartmenthas considered the manufacturerburdens as described in the manufacturer impact analysis ofthe TSD in adopting the new standard. These include cumulative burdens." 66 FR 7174. The statement ofbasis and purpose required by the APA (5 U.S.c. 553(c» to accompany a final rule must establish a rational connectionbetweenthe facts the agency found and the choices it made. In light ofthe evidence ofcumulativeregulatory burdens on manufacturers documented in the TSD, it is doubtful whetherthe mere assertion by DOE that it considered the cumulative burdens onmanufacturers is adequate to establish a rational basis for DOE's determination on manufacturerimpact resulting from a 13 SEER standard. DOE's discussion and conclusionsregarding the weight that should be givento cumulative regulatory burden in this rulemaking are set forth in the "Policy Issues" discussion immediately following this section, and in the preamble to today'sproposed rule (see Section V.B.2. ofthis
25 N:\wpdalalaircondilionerrule.ald.wpd June 29, 2001 (3:07PM)

### SUPPLEMENTARY INFORMATION). EE-RM/STD-98-440-#-c 3



### B. Policy Issues DOEreviewed the basis and rationale for the January 22, 2001 final rulepursuant to the President's Regulatory Review Plan, and it considered carefully numerous claims by ARI oferror
or insufficiency inDOE's analyses and its weighing ofthe benefits and burdens ofthe final rule. As aresult ofthis review, DOE has decided to accord more weight to certain factors, and those changes, which reflect the current Administration's policies, support DOE's decisions to propose withdrawal ofthe January 22 final rule and to publish today's proposed rule.

1. Burdens on Consumers During its review ofthe January 22 final rule, DOE reassessed its weighing ofburdens and benefits ofthe standards, giving particular attention tothe question ofwhether burdens on
consumers received adequate consideration and weight.

DOE currently is particularly concerned that new standards be designed to distribute their burdens and benefits as fairly as practical. Although some disparity is expected in any national standard, the disparity in impacts between low-income and typical consumers is ofmore concern at more stringent efficiency standards because increases in first cost are feltmore sharply by lower income consumers. The potential disparities would be diminished under the 12 SEER standard that DOE is proposing today.

-.

### ~~ ~~~~26 " N:\:pdata\airconditioneule . atd wpd 

### 26 June 29, 2001 (3:07PM) SUPPLEMENTARY INFORMATION). EE-RM/STD-98-440

## -#:~_::s 

## .

B. Policy Issues DOEreviewedthe basis and rationale for the January 22, 2001 final rule pursuantto the President's Regulatory Review Plan, and it considered carefully numerous claims by ARl oferror
orinsufficiency 

### inDOE'sanalyses and its weighing ofthe benefits and burdens ofthe final rule. As a result ofthisreview, DOEhas decided to accord more weightto certain factors, and those changes, whichreflect the currentAdministration'spolicies, support DOE's decisions to propose withdrawal ofthe January 22 final rule and to publishtoday'sproposed rule.

1. Burdens on Consumers During itsreview ofthe January 22 final rule, DOE reassessed its weighing ofburdens and benefits ofthe standards, givingparticular attention to the question ofwhetherburdens on
consumersreceived adequate consideration and weight.

DOE currently is particularly concerned that new standards be designedto distribute their burdens and benefits as fairly as practical. Although some disparity is expected in any national standard, the disparity in impacts between low-income and typical consumers is ofmore concern at more stringent efficiency standards because increases in first cost are felt more sharply by lower income consumers. The potential disparities would be diminished underthe 12 SEER standard that DOE is proposing today.



### 26 N:lwpdata\airconditionerrule.atd.wpd June 29, 2001 (3:07PM)

### EE-RM/STD-98-440-c' r-- - DOE also has considered that the fraction ofconsumers who are negatively impacted by a 13 SEER standard, in terms oflife-cycle cost savings versus the existing standards, is substantially higher than the fraction who are negatively impacted in other recent DOE efficiency rules. To illustrate, the efficiency standard for clothes washers, published in the Federal Register on January 12, 2001 (66 FR 3314), will negatively impact 19 percent ofall consumers and 19 percent oflow income consumers, and the efficiency standard for gas-fired residential water heaters, published in the Federal Register on January 17, 2001 (66 FR 4474), will result in negative life-cycle cost impacts for 12percent ofall consumers. 2 

### By contrast, under a 13 SEER standard for split air conditioners, 39percent and 50 percent ofaverage and low income consumers, respectively, would be negatively impacted. A 12 SEER standard would result in a lower fraction ofconsumers who are negatively impacted: 25 percent and 34 percent ofaverage and low income consumers, respectively.

In summary, DOE has decided that, in issuing the January 22 final rule, inadequate discussion and weight was given to the fraction ofall and low income consumers who incur negative life-cycle cost impacts as a result ofthe new standard. 2. Burdens on Manufacturers
a. Cumulative Regulatory Burden Inthe preceding section, DOE concluded that the statement ofbasis and purpose for the

2 For split air conditioners and gas water heaters, the fraction provided represents those consumers who incur an increase in life-cycle costs that exceeds 2percent ofthe total life-cycle cost, with low-income data available only for split-air conditioners. Forclothes washers, the fraction represents those consumers who incur any lifecycle cost increase at all. For direct comparison with clothes washers, the fraction ofall consumers incurring any increase inlife-cycle costs for gas water heaters is22 percent and for split air conditioners is 55 percent.
-~~~~27 N_ 

### ~N:\wpdata\airconditionerrule.atd.wpd 27 June 29, 2001 (3:07PM) EE-RM/STD-98-440

## -#-a~-;? DOE also has considered that the fraction ofconsumers who are negatively impacted by a 13 SEER standard, interms oflife-cycle cost savings versus the existing standards, is substantially higherthanthe fraction who are negatively impacted in otherrecent DOE efficiency rules. To illustrate, the efficiency standard for clothes washers, published inthe Federal Register
on January 12,2001 (66 FR3314), will negatively impact 19 percent ofall consumers and 19 percent oflowincome consumers, and the efficiency standard for gas-fired residential water heaters, published inthe Federal Register on January 17,2001 (66 FR4474), will result 

### in negative life-cycle cost impacts for 12 percent ofall consumers.2 By contrast, under a 13 SEER standard for split air conditioners, 39percent and 50 percent ofaverage and lowincome consumers, respectively, would be negatively impacted. A 12 SEER standard would result in a lower fraction ofconsumers who are negatively impacted: 25 percent and 34 percent ofaverage and low income consumers, respectively.

In summary, DOEhas decided that, in issuing the January 22 final rule, inadequate discussion and weight was given to the fraction ofall and low income consumers who incur negative life-cycle cost impacts as a result ofthe new standard. 2. Burdens on Manufacturers
a. Cumulative Regulatory Burden In the preceding section, DOE concluded that the statement ofbasis and purpose for the

2For split air conditioners and gas waterheaters, the fraction provided represents those consumers who incur an increase in life-cycle costs that exceeds 2 percent ofthe total life-cycle cost, with low-income data available only for split-air conditioners. Forclothes washers, the fraction represents those consumers who incur any Iifecycle cost increase at all. For direct comparison with clothes washers, the fraction ofall consumers incurring any increase in life-cycle costs for gas water heaters is 22 percent and for split air conditioners is 55 percent. 27 N:lwpdatalairconditionerrule.atd.wpd June 29. 2001 (307PM)

### EE-RM/STD-98-440 - 

## 4-: January 22 final rule did not adequately address the issue ofcumulative regulatory burden, which DOE recognizes is a key component ofthe assessment ofmanufacturer impact (see Process Improvement Rule, § 10(g), codified at 10 CFR Part 430, Subpart C, Appendix A). DOE's decision to propose withdrawal oftheJanuary 22 final rule is based in part on DOE's current view that the preamble to the final rule contained insufficient discussion ofcumulative regulatory burdens and gave insufficient weight to cumulative regulatory burdens.

As mentioned by ARI, DOE did have information, which was included in the TSD, of cumulative regulatory burdens. The TSD for the final rule shows that the most significant regulation facing the central air conditioning industry isthe Environmental Protection Agency's (EPA's) ban on new equipment utilizing aparticular hydrofluorocarbon (HCFC), HCFC-22, as a refrigerant, scheduled to take effect inJanuary 2010. In addition, an EPA ban on use ofHCFC141b as a foam blowing agent (used in water heaters, refrigerators and freezers) takes effect on January 1,2003. The TSD reports that companies must develop a wealth ofnew knowledge and experience to replace the refrigerant HCFC-22, and it estimates the cost ofconverting equipment to a substitute refrigerant to be on the order of$50 million per company. Additional regulatory burdens on manufacturers ofresidential central air conditioner and heat pump products are new DOE efficiency standards for refrigerators and freezers (effective July 1,2001) and water heaters (effective January 20, 2004); a Consumer Product Safety Commission voluntary standard for flammable vapor ignitions on water heaters (under development); and EPA standards under section 112(d) ofthe Clean Air Act on emissions ofhazardous airpollutants from the coating of

«„~~~~~28 

### ~~N:\wpdata'airconditionermuleatd.wpd 28 June 29, 2001 (3:07PM) EE-RM/STD-98-440-

# :/:to?c;:2,,3. January 22 final rule did not adequately address the issue ofcumulative regulatory burden, which DOE recognizes is a key component ofthe assessment ofmanufacturer impact (see Process Improvement Rule, 

### § 10(g), codified at 10 CFRPart 430, Subpart C, Appendix A). DOE's decision to propose withdrawal oftheJanuary 22 final rule is based in part on DOE'scurrent viewthat the preamble to the final rule contained insufficient discussion ofcumulative regulatory burdens and gave insufficient weightto cumulative regulatory burdens.

As mentioned by ARI, DOE did have information, which was included in the TSD, of cumulative regulatory burdens. The TSDfor thefmal rule shows thatthe most significant regulation facing the central air conditioning industry is the Environmental ProtectionAgency's (EPA's) ban on new equipmentutilizing a particularhydrofluorocarbon (HCFC), HCFC·22, as a refrigerant, scheduled to take effect inJanuary 2010. In addition, an EPA ban onuse ofHCFC· 141b as a foam blowing agent (used in waterheaters, refrigerators and freezers) takes effect on January 1,2003. The TSDreports that companies must develop a wealth ofnewknowledge and experience to replace the refrigerant HCFC·22, and it estimatesthe cost ofconverting equipment to a substitute refrigerant to be onthe order of$50 millionper company. Additional regulatory burdens on manufacturers ofresidential central air conditioner and heat pumpproducts are new DOE efficiency standards for refrigerators and freezers (effective July 1,2001)and waterheaters (effective January 20, 2004); a ConsumerProduct Safety Commissionvoluntary standard for flammable vapor ignitions onwaterheaters (under development); and EPA standards under section 112(d) ofthe CleanAirAct on emissions ofhazardous airpollutants from the coating of 

### 28 N.lwpdata\airconditionenlJle.atd.wpd June 29, 2001 (3:07PM)

### EE-RM/STD-98-440-

- "-" large appliances (expected to apply in 2004). While acknowledging that the uncertainty surrounding DOE's estimates is high, the TSD estimates the total investment required by manufacturers ofcentral airconditioner and heat pumps to meet these cumulative regulatory burdens will exceed $479 million. This estimate excludes the cost ofmanufacturer compliance with DOE's amended efficiency standard for air conditioners and heat pumps, which the TSD estimates is comparable the cost ofthe HCFC-22 phase-out (TSD, Section 8.6.).

b. Financial Burdens Associated with New Standards The TSD demonstrated that the more stringent 13 SEER standards adopted in the January 22 final rule would likely cause the industry's net cash flowto drop below zero (Section 8.4.6). It also noted that one segment ofthe industry (denominated "lower operating cost manufacturers" in the analysis) would likely benefit from more stringent standards, and that another segment ofthe industry (denominated "higher operating cost manufacturers") would bear nearly the total financial burden (Section 8.5). According to the TSD, the potential outcomes ofthese impacts could include accelerated consolidation and stifling ofinnovation. As a matter ofpolicy, DOE considers these outcomes to be potentially serious, and certainly material, consequences that should be discussed when adopting new standards. DOE is proposing to withdraw the January 22 final rule, in part, to give greater weight to the negative cash flow and maldistribution ofburdens
on industry of 13 SEER standards. DOE explicitly addresses these issues in the preamble to today's proposed rule in Section V.B.2. ofthis SUPPLEMENTARY INFORMATION. IV. Proposed Rule A. Background

N \wpdala\airconditionerrule.atdwpd 

### 29 June 29, 2001 (3:07PM)

EE-RM/STD-98-440-

# #**~_~** large appliances (expected to apply in 2004). While acknowledging that the uncertainty surrounding DOE's estimates is high, the TSD estimatesthe total investment required by manufacturers ofcentral airconditioner and heatpumpsto meetthesecumulative regulatory burdens will exceed $479 million. This estimate excludesthe cost ofmanufacturercompliance withDOE's amended efficiency standard for airconditioners and heatpumps, whichthe TSD estimates iscomparable the cost ofthe HCFC-22 phase-out (TSD, Section 8.6.).

b. Financial Burdens Associated with New Standards The TSD demonstratedthatthe more stringent 13 SEER standards adopted in the January 22 final rule would likely cause the industry's net cash flow to drop belowzero (Section 8.4.6). It also noted that one segment ofthe industry (denominated "loweroperating cost manufacturers" in the analysis) would likely benefit from more stringent standards, and that another segment ofthe industry (denominated "higheroperating cost manufacturers") would bear nearly the total financial burden (Section 8.5). According to the TSD, the potential outcomes ofthese impacts could include accelerated consolidation and stifling ofinnovation. As a matter ofpolicy, DOE considersthese outcomesto bepotentially serious, and certainly material, consequencesthat should be discussed when adopting new standards. DOE is proposing to withdrawthe January 22 final rule, inpart, to give greater weightto the negative cash flow and maldistribution ofburdens
on industry of 13 SEER standards. DOE explicitly addresses these issues in the preamble to today'sproposed rule in SectionV.B.2. ofthis SUPPLEMENTARY INFORMATION. IV. Proposed Rule A. Background
29 N Iwpdala\aircondilionerrule.ald.wpd June 29, 2001 (3:07PM)

### EE-RM/ISTD-98-440

-44='-e"m 1. Statutory Authority Part B ofTitle III ofthe Energy Policy and Conservation Act provides for the Energy Conservation Program for Consumer Products otherthan Automobiles (42 U.S.C. 6291 et seq.). The consumer products subject to this program (often referred to hereafter as "covered products") include central air conditioners and heat pumps. Under the Act, the program consists essentially ofthree parts: testing, labeling, and Federal energy conservation standards.

As discussed in the Introduction in Section I ofthis SUPPLEMENTARY INFORMATION, NAECA prescribed initial Federal energy conservation standards for central air conditioners and heat pumps (42 U.S.C. 6295(d)). NAECA further amended EPCA by specifying that DOE is to review and publish amended standards by January 1, 1994 (42 U.S.C. 6295(d)(3)(A)). Under EPCA, any new or amended standard must be designed so as to achieve the maximum improvement in energy efficiency that istechnologically feasible and economically justified (42 U.S.C. 6295(o)(2)(A)).
Section 325(o)(2)(B)(i) provides that before DOE determines whether a standard is economically justified, itmust first solicit comments on a proposed standard (42 U.S.C. 6295(o)(2)(B)(i)). That section further provides that, after reviewing the comments, DOE must determine whether thebenefits ofthe standard exceed its burdens, based, to the greatest extent practicable, on a weighing ofthe following seven factors: (i) The economic impact ofthe standard on the manufacturers and on the consumers of the products subject to such standard; 30 une29,3N:\wpdata\airconditionemrrleatd.wpd 

### 30 June 29. 2001 (3:07PM) 1. Statutory Authority EE-RM/STD-98-440

### -·#:--~C13 

### . PartB ofTitle III ofthe Energy Policy and ConservationAct provides for the Energy Conservation Program for Consumer Products otherthanAutomobiles (42 U.S.C. 6291 et seq.). The consumerproducts subjectto this program (oftenreferred to hereafter as "covered products") include central airconditioners and heatpumps. Underthe Act,the program consists essentially ofthreeparts: testing, labeling, and Federal energy conservation standards.

As discussedinthe Introduction in Section I ofthis SUPPLEMENTARY INFORMATION,NAECAprescribed initial Federal energy conservation standards for central air conditioners andheatpumps (42 U.S.C. 6295(d)). NAECA further amended EPCAby specifying thatDOE is to review andpublish amended standards by January -1, 1994 (42 U.S.C. 6295(d)(3)(A)). UnderEPCA, any new or amended standard mustbe designed so as to achieve the maximum improvement in energy efficiency that is technologically feasible and economically justified (42 U.S.C. 6295(0)(2)(A)).

Section 325(0)(2)(8)(i)provides thatbefore DOE determines whether a standard is economicallyjustified, itmust first solicit comments on a proposed standard (42 U.S.C. 6295(0)(2)(8)(i)). That section further providesthat, afterreviewing the comments, DOEmust determine whetherthebenefits ofthe standard exceed its burdens, based, to the greatest extent practicable, on a weighing ofthe following seven factors: (i) The economic impact ofthe standard onthe manufacturers and onthe consumers of the products subject to such standard;
30 N:lwpdatalairconditionerrule.atd.wpd June 29, 2001 (3:07PM)

### EE-RM/STD-98-440- 

### c?3:F , (ii) The savings in operating costs throughout the estimated average life ofthe covered product in the type (or class) compared to any increase in the price of,or in the initial charges for,
or maintenance expenses of,the covered products which are likely to result from the imposition of the standard; (iii) The total projected amount ofenergy savings likely to result directly from the imposition ofthe standard; (iv) Any lessening ofthe utility or the performance ofthe covered products likely toresult from the imposition ofthe standard; (v) The impact ofany lessening ofcompetition, as determined in writing bythe Attorney General, that is likely to result from the imposition ofthe standard; (vi) The need for national energy conservation; and (vii) Other factors the Secretary considers relevant.

In addition, section 325(o)(2)(B)(iii) establishes a rebuttable presumption ofeconomic justification in instances where the Secretary determines that "the additional cost to the consumer ofpurchasing a product complying with an energy conservation standard level will be lessthan three times the value ofthe energy ... savings during the first year that the consumer will receive
as a result ofthe standard, as calculated under the applicable test procedure
.... " (42 U.S.C. 6295(o)(2)(B)(iii)). The rebuttable presumption test is an alternative path to establishing economic justification.

2. Rulemaking History ~3 ~1 Jue9,3N:\w0pdata\airconditionermle.atd.wpd 31 June 29, 2001 (3:07PM) EE-RM/STD-98-440

# -#c:?:;2,3 I (ii) The savings in operating costs throughout the estimated average life ofthe covered product in the type (orclass) compared to any increase in theprice of, or in the initial charges for,
ormaintenance expenses of, the covered products which are likely to result from the imposition of the standard; (iii) The total projected amount ofenergy savings likely to result directly from the imposition ofthe standard; (iv) Any lessening ofthe utility orthe performance ofthe coveredproducts likely toresult from the imposition ofthe standard; (v) The impact ofany lessening ofcompetition, as determined inwriting by the Attorney General, that is likely to result from the imposition ofthe standard; (vi) The need for national energy conservation; and (vii) Other factors the Secretary considers relevant.

In addition, section 325(o)(2)(B)(iii) establishes a rebuttable presumption ofeconomic justification in instances where the Secretary determines that "the additional costto the consumer ofpurchasing a product complyingwith an energy conservation standard level will be less than three times the value ofthe energy ... savings during the first year that the consumerwill receive
as a result ofthe standard, as calculated under the applicable test procedure
...." (42 U.S.C. 6295(o)(2)(B)(iii)). The rebuttable presumption test is an alternative pathto establishing economicjustification.

2. Rulemaking History
31 N:lwpdata\airconditionerrule.atd.wpd June 29, 2001 (3:07PM)

### EE-RM/STD-98-440 -- ' ;c- 5 

### . The existing standards for residential central air conditioners and heat pumps have been in effect since 1992. As described in the Introduction to this SUPPLEMENTARY INFORMATION, the efficiency descriptor for air conditioner and heat pump cooling efficiency is SEER (or Seasonal Energy Efficiency Ratio), and the descriptor for heat pump heating efficiency is HSPF (or Heating Seasonal Performance Factor). SEER is DOE's measure ofenergy efficiency for the seasonal cooling performance ofcentral air conditioners and heat pumps. HSPF is DOE's
measure ofenergy efficiency for the seasonal heating performance ofheat pumps. The current central air conditioner and heat pump efficiency standards are as follows:

- Split system air conditioners and heat pumps - 10 SEER/6.8 HSPF

- Single package air conditioners and heat pumps - 9.7 SEER/6.6 HSPF

On September 8, 1993, DOE published an Advance Notice ofProposed Rulemaking (ANOPR) announcing DOE's intention to revise the existing central air conditioner and heat pump efficiency standard. 58 FR 47326. During a workshop on June 30, 1998, DOE presented for comment an analytical framework for the central air conditioner and heat pump standards rulemaking. The analytical framework described the different analyses to be conducted, the methods forconducting them, the use ofnew spreadsheets, and the relationship ofthe various analyses. On November 24, 1999, DOE published a Supplemental ANOPR and invited additional comment on issues raised following publication ofthe original ANOPR. 64 FR 66306.

On October 5, 2000, DOE published a notice ofproposed rulemaking (October 5, 2000, NOPR). 65 FR 59590. The energy efficiency standards that DOE proposed for residential central

N:\2pdata\airconditionerrule.atd.wpd 

### 32 June 29. 2001 (3:07PM) The existing standards for residential central air conditioners and heat pumps have been in effect since 1992. As described inthe Introduction to this SUPPLEMENTARY INFORMAnON, the efficiency descriptor for airconditioner and heat pump coolingefficiency is SEER(or Seasonal Energy Efficiency Ratio), and the descriptor for heat pump heating efficiency is HSPF (or Heating Seasonal Performance Factor). SEERis DOE's measure ofenergy efficiency forthe seasonal cooling performance ofcentral airconditioners and heatpumps. HSPF is DOE's
measure ofenergy efficiency for the seasonal heatingperformance ofheat pumps. The current central air conditioner and heatpump efficiency standards are as follows:

- Split system air conditioners and heatpumps - 10 SEER/6.8 HSPF

- Single package air conditioners and heatpumps - 9.7 SEER/6.6 HSPF

On September 8, 1993, DOEpublished an Advance Notice ofProposed Rulemaking (ANOPR) announcing DOE'sintentionto revise the existing central air conditioner and heat pump efficiency standard. 58 FR47326. During a workshop on June 30, 1998, DOE presented for comment an analytical framework for the central air conditioner and heat pump standards rulemaking. The analytical framework described the different analyses to be conducted, the methods for conducting them, the use ofnew spreadsheets, and the relationship ofthe various analyses. OnNovember 24, 1999, DOEpublished a Supplemental ANOPR and invited additional comment on issues raised following publication ofthe original ANOPR. 64 FR66306.

On October 5, 2000, DOEpublished a notice ofproposed rulemaking (October 5, 2000, NOPR). 65 FR 59590. The energy efficiency standards that DOE proposed for residential central
32 N:I"l'data\airconditionerrule.atd.wpd June 29, 2001 (3:07PM)

### EE-RM/STD-98-440--:c: c..^-- 3, air conditioners and central air conditioning heat pumps (heat pumps) were as follows:

- Split-system and single-package air conditioners -12 SEER

- Split-system and single package heat pumps - 13 SEER/7.7 HSPF

- Through-the-wall air conditioners and heat pumps - 11 SEER/7.1 HSPF. In addition tothe increase proposed in SEER and HSPF, DOE requested comments on a proposal to adopt a standard for steady-state cooling efficiency, denominated EER (or Energy Efficiency Ratio).3 

### The proposal ofan EER was designed to ensure more efficient operation at high outdoor temperature, during periods when electricity use by air conditioners is at its peak. A public hearing was held in Washington, D.C. onNovember 16, 2000 to hear oral views, data and arguments on the proposed rule.

As explained in the Introduction to this SUPPLEMENTARY INFORMATION, DOE published a final rule onJanuary 22, 2001 that would have required a SEER of 13 forproduct classes covered by the rule with a corresponding HSPF of7.7 for heat pumps. Subsequent events, including notices delaying the final rule's effective date pursuant to the President's Regulatory Review Plan, petitions forjudicial review, and ARI's petition for reconsideration ofthe final rule,
are also discussed in the Introduction.

B. Overview ofthe Proposed Standards DOE, through today's proposed rule, would amend the almost ten-year old minimum

3 EER is a steady-state measure ofenergy efficiency which measures efficiency at a prescribed outdoor temperature (95T), and is one ofthe test conditions in DOE's test procedure used to develop the SEER. N:\wpdata\airconditionerrule.atd.wpd 33 June 29.2001 (3:07PM)

### EE-RM/STD-98-440-::tt:-df~,3, air conditioners and central air conditioning heat pumps (heatpumps) were as follows:

- Split-system and single-package air conditioners -12 SEER

- Split-system and single packageheatpumps - 13 SEER!7.7 HSPF

- Through-the-wall airconditioners and heat pumps - 11 SEER!7.1 HSPF. In addition tothe increase proposed in SEER and HSPF, DOE requested comments ona proposal to adopt a standard for steady-state cooling efficiency, denominated EER(orEnergy Efficiency Ratio).3 Theproposal ofanEERwas designed to ensure more efficient operation at high outdoortemperature, during periods when electricity use by air conditioners is at its peak. A public hearing was held in Washington,D.C. onNovember 16, 2000 to hear oral views, data and arguments on the proposed rule.

As explained inthe Introduction to this SUPPLEMENTARY INFORMATION, DOE published a final rule on January 22, 2001 that would have required a SEERof 13 for product classes covered by the rule with a corresponding HSPF of7.7 for heat pumps. Subsequent events, including notices delaying the final rule's effective date pursuant to the President's Regulatory Review Plan, petitions forjudicialreview, and ARI'spetition for reconsideration ofthe final rule,
are also discussed inthe Introduction.

B. Overview ofthe Proposed Standards DOE, through today'sproposed rule, would amendthe almost ten-year old minimum

3 EER is a steady-state measure ofenergy efficiency which measures efficiency at a prescribed outdoor temperature (95'F), and is one ofthe test conditions in DOE'stest procedure used to develop the SEER. 33 N.lwpdatalairconditionerrule.atd.wpd June 29. 2001 (3:07PM)

### EE-RM/STD-98-440-9-- 4 , ' 3 efficiency standards for new central air conditioners and heat pumps. These amended standards would take into account a decade oftechnological advancements and would save consumers and the nation money, significant amounts ofenergy, and have substantial environmental and economic benefits.

Iftoday's proposed standards go into effect, they would essentially raise the energy efficiency standards to 12 SEER for new central air conditioners and tol2 SEER/7.4 HSPF for
new central air conditioning heat pumps. In its petition for reconsideration, ARI argued that ifa 12 SEER standard is adopted for central air conditioning heatpumps, the HSPF should be no higher than 7.3 (Petition Discussion, paragraph n). ARI, and other persons who commented on the October 5 proposed rule, urged DOE to revise the HSPF levels to reflect differences among the SEER-HSPF relationships across equipment ofvarying capacity ratings. As DOE explained in the preamble to the January 22, 2001 final rule, DOE established the SEER-HSPF parings in order to maintain the offset between the minimum SEER and the minimum HSPF in the current standards. Because heating energy is a large fraction oftotal heat pump energy consumption, DOE stated itwould not relax the HSPF level in the absence ofsound evidence regarding the burdens that would be mitigated (66 FR 7184). DOE continues to think an HSPF of7.4 is the appropriate level for 12 SEER. Data discussed in the TSD (Section 4.6.2.1) show that most models ofequipment below 3-tons meet or exceed an HSPF of7.4, and almost a third ofmodels available below 20,000 BTU/hr. meet or exceed an HSPF of7.4.

The proposed standards would apply to products manufactured for sale in the United
N:\wpdata\airconditionermle.atd.pd 34 June 29, 2001 (3:07PM) EE·RM/STD-98-440

## ~#-C:<~,--3 

# . efficiency standards for new central air conditioners and heat pumps. These amended standards' would take into account a decade oftechnological advancements and would save consumers and the nation money, significant amounts ofenergy, and have substantial environmental and economic benefits.
Iftoday'sproposed standards go into effect, they would essentially raise the energy efficiency standardsto 12 SEERfor newcentral air conditioners and to12 SEERl7.4 HSPF for
newcentral airconditioning heat pumps. In its petition for reconsideration, ARI argued that ifa 12 SEER standard is adopted for central air conditioning heatpumps, the HSPF should be no higherthan 7.3 (Petition Discussion, paragraph n). ARI, and otherpersons who commented on the October 5proposed rule, urged DOE to revise the HSPF levels to reflect differences among the SEER-HSPF relationships across equipment ofvarying capacity ratings. As DOE explained inthe preamble to the January 22, 2001 final rule, DOE established the SEER-HSPF parings in orderto maintain the offset between the minimum SEER and the minimum HSPF inthe current standards. Because heating energy is a large fraction oftotal heatpump energy consumption, DOE stated it would not relax the HSPF level inthe absence ofsound evidence regarding the burdens that would be mitigated (66 FR7184). DOE continues to think an HSPF of7.4 is the appropriate level for 12 SEER. Data discussed inthe TSD (Section4.6.2.1) showthat most models ofequipment below 3-tons meet orexceed an HSPF of7.4, and almost athird ofmodels available below20,000 BTUIhr. meet orexceed an HSPF of7.4.

The proposed standards would apply to products manufactured for sale in the United
34 N:lwpdatalairconditionemJle.atd.wpd June 29. 200I (3 :07PM)

### EE-RM/STD-98-440-- 3 States, as of [INSERT DATE 5 YEARS AFTER DATE OF PUBLICATION IN THE FEDERAL REGISTER]. The proposed standard for split-system air conditioners, the most
common type ofresidential air conditioning equipment, represents a 20percent improvement in energy efficiency. For split-system heat pumps, the new standard would represent a 20 percent improvement in cooling efficiency and a 9 percent improvement in heating efficiency. The standard would also increase the cooling efficiency ofsingle-package air conditioners and singlepackage heat pumps by 24 percent and the heating efficiency of single-package heat pumps by 12 percent. Finally, DOE isproposing to adopt new standards for some products to ensure that more efficient versions remain available for niche applications. DOE proposes to determine that the
new standards are the highest efficiency levels that are technologically feasible and economically justified as required by law. Several aspects oftoday's proposed standards warrant highlighting here, as follows:

1.Central Air Conditioner and Heat Pump Features The proposed efficiency levels can be met by central air conditioner and heat pump designs that are already available in the market. DOE fully expects variations ofthese models to exist under the new standards, offering all the features and utility that are found in currently available products.

2. Consumer Benefits Table 1summarizes the "characteristics" oftoday's typical central air conditioners and heat pumps. Table 2 presents the implications for the average consumer ofthe standards
35 N \wpdata\airconditionerrule.atd wpd

J35 June 29, 2001 (3:07PM) EE.RM/STD-98-440·_·1f-**~3** States, as of[INSERT DATE 5 YEARS AFTER DATE OF PUBLICATION IN THE FEDERALREGISTER]. The proposed standard for split-system air conditioners, the most
common type ofresidential air conditioning equipment, represents a 20percent improvement in energy efficiency. Forsplit-system heat pumps, the new standard would represent a 20 percent improvement in cooling efficiency and a 9 percent improvement inheating efficiency. The standard would also increase the cooling efficiency ofsingle-package airconditioners and singlepackage heatpumpsby 24 percent andthe heating efficiency ofsingle-packageheatpumpsby 12 percent. Finally, DOEisproposingto adopt new standards for some productsto ensurethat more efficient versionsremain available for niche applications. DOEproposestodetermine that the
new standards are the highest efficiency levels that are technologically feasible and economically justified as required by law. Several aspects oftoday'sproposed standards warranthighlighting here, as follows:

1. Central Air Conditioner and Heat PumpFeatures The proposed efficiency levels can be met by central air conditioner and heat pump designs that are already available in the market. DOE fully expects variations ofthese models to exist under the new standards, offering all the features and utility that are found in currently available products.

2. ConsumerBenefits Table 1 summarizes the "characteristics" oftoday'stypical central air conditioners and heat pumps. Table 2 presents the implications for the average consumer ofthe standards
35 N:lwpdatalairconditionerrule.atd.wpd June 29, 2001 (3:07PM)

### becoming effective in 2006. EE-RM/STD-98- 440~.--c^c.3

Table 1: CharacteristicsofToday's Typical Central Air Conditioners and Heat Pumps' Split System Split System Single Package Single Package Air Conditioner Heat Pump Air Conditioner Heat Pump Average Installed Price $2,236 $3,668 $2,607 $3,599 Annual Utility Bill2 $189 $453 $189 $453 Life Expectancy 18.4 years 18.4 years 18.4 years 18.4 years Energy Consumption per year 2,305 kWh 6,549 kWh 2,305 kWh 6,549 kWh '"Typical" equipment have cooling and heating efficiencies of 10 SEER and 6.8 HSPF, respectively. 2Utility bill pertains to the energy cost ofoperating the air conditioner or heat pump.



### Table 2: Implications ofNew Standardsfor the Average Consumer Split System Split System Single Package Single Package AirConditioner Heat Pump Air Conditioner Heat Pump Year Standard Comes into Effect 2006 2006 2006 2006 New Average Installed Price $2,449 $3,812 $2,765 $3,748 Estimated Price Increase $213 $144 $158 $149 Annual Utility Bill Savings $31 $50 $31 $50 Average Net Saving overEquipment. $113 $365 $163 $421 Life Energy Savings per Year 384 kWh 768kWh 384kWh 768 kWh 

### The most typical air conditioner (i.e., split system air conditioner which comprises approximately 65 percent oftoday's central air conditioning and heat pump market) has an installed price of$2,236 and an annual utility costs of$189. In order to meet the 2006 proposed standard, DOE estimates that the installed price ofa typical air conditioner would be $2,449, an

N:\.wpdata\'airconditionerrule atd pd 36 June 29, 2001 (3:07PM) becoming effective in 2006.



### Table 1: CharacteristicsofToday'sTypical CentralAirConditioners andHeatPumpsl Split System Split System Single Package Single Package Air Conditioner Heat Pump Air Conditioner Heat Pump Average Installed Price $2,236 $3,668 $2,607 $3,599 Annual Utility BilF $189 $453 $189 $453 Life Expectancy 18.4 years 18.4 years 18.4 years 18.4 years Energy Consumptionperyear 2,305 kWh 6,549 kWh 2,305 kWh 6,549 kWh

.. 

### . I "TypIcal" equIpmenthave coolmgandheatmg efficIencIes of 10 SEER and 6.8 HSPF, respectively
. 2 Utility bill pertainsto the energy cost ofoperatingthe air conditioner orheatpump.


### Table2: Implications ofNew Standards for theAverage Consumer Split System Split System Single Package Single Package Air Conditioner Heat Pump Air Conditioner Heat Pump Year Standard Comes into Effect 2006 2006 2006 2006 New Average Installed Price $2,449 $3,812 $2,765 $3,748 Estimated Price Increase $213 $144 $158 $149 Annual Utility Bill Savings $31 $50 $31 $50 Average Net Saving overEquipment. $113 $365 $163 $421 Life Energy Savings per Year 384 kWh 768 kWh 384 kWh 768 kWh The most typical air conditioner (i.e., split system air conditioner which comprises approximately 65 percent oftoday'scentral air conditioning and heatpumpmarket) has an installedprice of$2,236 and an annual utility costs of$189. In orderto meet the 2006 proposed standard, DOE estimatesthatthe installed price ofa typical air conditioner wouldbe $2,449, an

36 N:\wpdata\airconditionerrule.atd.wpd June 29, 2001 (3:07PM)

### EE-RM/STD-98-440 - .- 

# QA increase of$213.4 

### This price increase would be offset by an annual energy savings ofabout $31
on the utility bills. The most typical heat pump (i.e., split system heat pump) currently has an installed price of$3,668 and annual utility costs of$453. In order to meet the 2006 proposed standard, DOE estimates thatthe installed price ofatypical heat pump would be $3,812, an increase of$144.5 

### This price increase would be offset by an annual energy savings ofabout $50
on the utility bills.

DOErecognizes that mostconsumers pay energy prices that are higher or lower than the "typical" consumer and operate their equipment more or less often. Consequently, DOE has investigated theeffects ofthe different energy prices across the nation and different airconditioning usage patterns. DOE estimates that 75 percent ofall consumers purchasing a new typical air conditioner would either save money or would be negligibly impacted as aresult ofthe 2006 proposed standard.6 

### In the case ofa new typical heat pump, all consumers either would save money or be negligibly impacted.7



### DOE also investigated howthese standards might affect low income consumers. On average, DOE estimates that it is likely that low income air conditioner and heat pump consumers

4 Based on estimates supplied by the industry trade association, the Air-Conditioning and Refrigeration Institute (ARI), the installed price is estimated tobe $2,510, an increase of$274. 5 Based on estimates supplied by ARI, the installed price is estimated to be $3,933, an increase of$265. 6Based on estimates supplied by ARI, 61 percent ofall consumers purchasing a new typical air conditioner will either save money or will be negligibly impacted as a result ofthe 2006 standard. 7 Based on estimates supplied by ARI, 97 percent ofall consumers purchasing a new typical heat pump will either save money or will be negligibly impacted as a result ofthe 2006 standard.
N:\wpdata\airconditionerrule.atd.wpd 

### 37 June 29, 2001 (3:07PM) EE-RM/STD-98-440

# -'ItC::<C?3 increase of$213.4 Thisprice increase would be offset by an annual energy savings ofabout $31
onthe utility bills. The mosttypical heat pump (i.e., split system heatpump) currently has an installed price of$3,668 and annual utility costs of$453. In orderto meet the 2006proposed standard, DOE estimatesthatthe installedprice ofatypical heat pump wouldbe $3,812, an increase of$144.5 This price increase would be offsetby an annual energy savings ofabout $50
onthe utility bills.

DOE recognizes that most consumerspay energy pricesthat are higher or lowerthan the "typical"consumer and operatetheir equipmentmore or less often. Consequently, DOE has investigated the effects ofthe different energy prices across the nation and different airconditioning usage patterns. DOE estimates that 75 percent ofall consumerspurchasing a new typical air conditioner would either save money orwould be negligibly impacted as a result ofthe 2006 proposed standard. 6 In the case ofa newtypical heatpump, all consumers either would save money or be negligibly impacted.'

DOE also investigated howthese standards might affect low income consumers. On average, DOE estimates that it is likely that low income air conditioner and heat pump consumers

4 Based on estimates supplied by the industry trade association, the Air-Conditioning and Refrigeration Institute (ARl), the installed price is estimatedto be $2,510, an increase of$274.
5 Based on estimates supplied by ARl, the installed price is estimated to be $3,933, an increase of$265. 6Based on estimates supplied by ARl, 61 percent ofall consumers purchasing a new typical air conditioner will either save money or will be negligibly impacted as a result ofthe 2006 standard.

1 Based on estimates supplied by ARl, 97 percent ofall consumers purchasing a new typical heat pump will either save money orwill be negligibly impacted as a result ofthe 2006 standard. 37 N:lwpdatalairconditionerrule.atd.wpd June 29, 2001 (3:07PM)

### EE-RM/STD-98-440 -:: .3 , would also save money over the life ofthe equipment as a result ofthe standard.

3. National Benefits

The proposed standards would provide benefits to the nation. DOE estimates the standards would save approximately 3quads ofenergy over 25 years (2006 through 2030). This is equivalent to all the energy consumed by nearly 17 million American households in a single year. In 2020, the proposed standards would avoid the construction ofthree 400 megawatt coalfired plants and twenty-three 400 megawatt gas-fired plants. These energy savings would result in cumulative greenhouse gas emission reductions ofapproximately 24 million metric tons (Mt) of carbon, or an amount equal to that produced by approximately 2million cars every year. Additionally, airpollution would be reduced by the elimination ofapproximately 70 thousand metric tons ofnitrous oxides (NOx) from 2006 through 2030. Intotal, DOE estimates this proposed standard would have anet benefit to the nation's consumers of $2billion over the period 2006 through 2030.8

C. Technological Feasibility There are central air conditioners and heat pumps in the market at the efficiency levels that would be prescribed by today's proposed rule. DOE, therefore, believes all ofthe proposed

8 Based on estimates supplied by ARI, the standard would have a net cost to the nation's consumers of$1 billion.
N:N\'pdaltaairconditionerrule.ald.wpd 

### 38 June 29, 2001 (3:07PM) EE-RM/STD-98-440-#

### ~~3. would also save money overthe life ofthe equipment as a result ofthe standard.

3. National Benefits

The proposed standards wouldprovidebenefits tothe nation. DOE estimates the standards would save approximately 3 quads ofenergy over25 years (2006 through 2030). This is equivalent to all the energy consumedbynearly 17 million American households in a single year. In2020, theproposed standardswould avoidthe construction ofthree 400megawatt coalfired plants and twenty-three 400 megawatt gas-firedplants. These energy savings would result in cumulative greenhouse gas emissionreductions ofapproximately 24 million metric tons (Mt) of carbon, oran amount equal to that produced by approximately 2 million cars every year. Additionally, air pollution would be reduced by the elimination ofapproximately 70 thousand metric tons ofnitrous oxides (NOJ from 2006 through 2030. In total, DOE estimates this proposed standard would have a netbenefitto the nation's consumers of$2 billion overthe period 2006through 2030. 8

C. Technological Feasibility There are central airconditioners and heatpumps inthe market at the efficiency levelsthat wouldbe prescribed by today'sproposedrule. DOE, therefore, believes all ofthe proposed

billion. 8Based on estimates supplied by ARl, the standard would have a net cost to the nation's consumers of$1 

### 38 N:I"'pdata \airconditionerrule.atd."''J'd

June 29, 2001 (3:07PM)

### efficiency levels are technologically feasible. EE-RM/STD-98-440

- i 7 

# 3

Pursuant to section 325(p)(2) ofEPCA, and as discussed in the October 5,2000 NOPR, DOE determined that 18 SEER is the maximum technologically feasible level (Max Tech Level) for cooling efficiency for all product classes and capacities covered by this rulemaking. 65 FR 59593. The Max Tech Level for heating efficiency is 9.4 HSPF, which is the highest HSPF rating currently available in residential heat pumps.

D. General Discussion ofEconomic Justification Factors As noted earlier, section 325(o)(2)(B)(i) ofEPCA requires DOE to consider seven factors in determining whether a conservation standard is economically justified.

1. Economic Impact on Manufacturers and Consumers DOE considered the economic impact on manufacturers and consumers as discussed in the October 5, 2000, NOPR (65 FR 59590, 59593) and the January 22, 2001 final rule (66 FR 7174- 78, 7185-7191). As explained in Section III and Section V.B. ofthis SUPPLEMENTARY INFORMATION, today's proposal is based in part onchanges in emphasis or weight that DOE,
as a result ofits reconsideration ofthe rulemaking record, now gives to certain aspects ofits analysis ofmanufacturer and consumer impact.

N:\wpdata'airconditionermle.atd.wpd 

### 39 June 29, 2001 (3:07PM) efficiency levels are technologically feasible. EE-RM/STD-98-440

# ---:/I-c:?cR3 I

Pursuantto section 325(p)(2) ofEPCA, and as discussed in the October 5, 2000 NOPR, DOE detenninedthat 18 SEER is the maximum technologically feasible level (Max Tech Level) for cooling efficiency for all product classes and capacities covered by this rulemaking. 65 FR 59593. The Max TechLevel for heating efficiency is 9.4 HSPF, which is the highest HSPF rating currently available 

### inresidential heatpumps.

D. General Discussion ofEconomic Justification Factors As noted earlier, section 325(0)(2)(B)(i) ofEPCA requires DOE to consider seven factors in detennining whether a conservation standard is economicallyjustified.

1. Economic Impact on Manufacturers and Consumers DOE considered the economic impact on manufacturers and consumers as discussed in the October 5,2000,NOPR (65 FR 59590,59593) and the January 22, 2001 final rule (66 FR 7174- 78, 7185-7191). As explained in Section III and SectionV.B. ofthis SUPPLEMENTARY INFORMAnON, today's proposal is based inpart onchanges in emphasis orweight that DOE,
as a result ofits reconsideration ofthe rulemaking record, now gives to certain aspects ofits analysis ofmanufacturer and consumerimpact.

39 N:\wpdala\aircondilionerruIe.ald.wpd June 29, 2001 (3:07PM)

### EE-RM/STD-98-440 -" c< 

# 3 2. Life-cycle costs and Rebuttable Presumption DOE considered life-cycle costs (LCC), as discussed in the January 22, 2001 final rule. 66 FR 7173, 7175, 7187-90. DOE calculated the installed price and operation and maintenance costs for a range ofconsumers around the nation to estimate the range in life-cycle costbenefits that
consumers would expect to achieve dueto new standards. DOE has made no change in its assumptions and analysis oflife-cycle costs in proposing today's rule.

As previously mentioned, NAECA established new criteria fordetermining whether a standard level is economicallyjustified. Section 325(o)(2)(B)(iii) ofEPCA provides that if, according tothe applicable test procedure, the increase in initial price ofan appliance due to a conservation standard would repay itselfto the consumer in energy savings in less than three years,then DOE is topresume that such standard is economicallyjustified. This presumption of economicjustification can berebutted upon a proper showing. Using the reverse engineering manufacturing costs, the standards DOE proposes today for split heatpumps and packaged heat pumps can be shown to have satisfied the rebuttable presumption requirements in section 325(o)(2)(B)(iii). To avoid confusion, DOE points out that the statute requires DOE touse "the applicable test procedure" to calculate the payback periods for purposes ofthe rebuttable presumption. As explained in the October 5,2000 NOPR, the annual cooling and heating energy consumption calculations based on DOE's test procedure are significantly greater than the weighted-average values from DOE's life-cycle cost analyses based

N :\wpdata'airconditionerrule.atdvpd 

### 40 June 29. 2001 (3:07PM) 2. Life-cycle costs and Rebuttable Presumption EE-RM/STD-98-440 -

### #--~~3 DOE considered life-cycle costs (LCC), as discussed in the January 22, 2001 final rule. 66 FR7173, 7175, 7187-90. DOE calculated the installed price and operation and maintenance costs for arange ofconsumers around the nation to estimate the range in life-cycle costbenefitsthat
consumers would expectto achieve dueto newstandards. DOEhas madeno change inits assumptions and analysisoflife-cyc1e costsin proposingtoday'srule.

Aspreviously mentioned, NAECA established new criteria for determining whethera standard level is economicallyjustified. Section 325(0)(2)(B)(iii) ofEPCAprovides that if, according to the applicable testprocedure, the increase in initial price ofan appliance due to a conservation standard would repay itselfto the consumer in energy savings in less thanthree years,then DOE is topresume that such standard is economicallyjustified. This presumption of economicjustificationcan be rebutted upon a proper showing.
Using the reverse engineering manufacturing costs, the standards DOEproposestoday for split heat pumps and packaged heat pumps can be shO\\TI to have satisfied the rebuttable presumptionrequirements in section 325(0)(2)(B)(iii). To avoid confusion, DOEpoints outthat the statute requires DOE to use "the applicabletestprocedure" to calculate the paybackperiods for purposes ofthe rebuttable presumption. As explained in the October 5, 2000NOPR,the annual cooling and heating energy consumption calculations based on DOE'stest procedure are significantly greaterthanthe weighted-average values from DOE's life-cycle cost analyses based 

### 40 N:lwpdala\aircondilionerrule.ald
.... pd June 29. 2001 (3:07PM)

### EE-RM/STD-98-440 -3.-2
on the 1997 Residential Energy Consumption Survey, used in other DOE analyses, including evaluation ofconsumer impacts. 65 FR 59596. Forthis reason, the payback periods presented in Section V ofthis portion ofthe preamble, entitled "Analytical Results and Conclusions," are significantly longer than those calculated to determine whether the rebuttable presumption applies to these products.

While the analysis requires DOE to presume that the standards adopted for split system and single package heat pumps are economically justified, it shows that split system air conditioners and single package air conditioners do not meet the standard for use ofthe rebuttable presumption ofeconomic justification. Therefore, DOE does not presume them to be economically justified. Ifthe rebuttable presumption does not apply, DOE must perform additional analysis to determine economic justification. DOE has performed an analysis forall classes ofcentral air conditioner and heat pump products that shows the standards proposed today
are indeed economically justified.

3. Energy Savings EPCA requires DOE, in determining the economic justification ofa standard, to consider the total projected energy savings that are expected to result directly from revised standards. DOE forecasted energy savings through the use ofa national energy savings (NES) spreadsheet, as discussed in the October 5, 2000 NOPR. 65 FR 59590, 59593. DOE relies on the same spreadsheets and assumptions for its estimate ofthe NES that would result from implementation oftoday's proposed standards.

N:\pdata\airconditionerrule.atd wpd 41 June 29, 2001 (3:07PM)

### EE-RM/STD-98-440-~**~.3** on the 1997 Residential Energy Consumption Survey, used in other DOE analyses, including evaluation ofconsumerimpacts. 65 FR59596. Forthis reason, the paybackperiodspresented in Section V ofthis portion ofthe preamble, entitled "Analytical Results and Conclusions," are significantly longerthanthose calculated to determine whetherthe rebuttable presumption applies tothese products.

Whiletheanalysisrequires DOEtopresume thatthe standards adopted for split system and single package heatpumps are economicallyjustified, it shows that split system air conditioners and single package airconditioners do not meet the standard for use ofthe rebuttable presumption ofeconomicjustification. Therefore, DOE does notpresumethem to be economicallyjustified. Ifthe rebuttable presumption does not apply, DOE mustperform additional analysis to determine economicjustification. DOEhasperformed an analysis for all classes ofcentral air conditioner and heat pump products that showsthe standards proposed today
are indeed economicallyjustified.

3. Energv Savings EPCA requires DOE, in determining the economicjustification ofa standard, to consider thetotal projected energy savingsthat are expected to result directly from revised standards. DOE forecasted energy savingsthroughthe use ofa national energy savings (NES) spreadsheet, as discussed in the October 5, 2000NOPR. 65 FR 59590, 59593. DOErelies onthe same spreadsheets and assumptions for its estimate ofthe NES that would result from implementation oftoday's proposed standards.
41 N.lwpdalalaircondilionelTUle.ald.wpd June 29, 2001 (3.07PM)

### EE-RM/STD-98-440 -- a 5 

### As discussed in the October 5,2000NOPR, section 325(o)(3)(B) ofEPCA prohibits DOE from adopting a standard for aproduct ifthat standard would not result in "significant" energy savings. The energy savings for the standard levels DOE is proposing today are non-trivial

- indeed they are substantial

- and therefore we consider them "significant" within the meaning of section 325 ofthe Act.

4. Lessening ofUtility or Performance ofProducts This factor cannot be quantified. In establishing classes ofproducts, DOE has attempted to eliminate any degradation ofutility orperformance inthe products covered bytoday's proposed rule. Attributes that affect utility include theproduct's ability to cool and dehumidify. In some applications, noise levels may also be an aspect ofutility. Product size or configuration
can also be considered utility ifa change in size would cause the consumer to install the product in a location or in amanner inconsistent with the consumer's preferences.

5. Impact ofLessening ofCompetition This economicjustification factor has two aspects: on the one hand, it assumes that there could be some lessening ofcompetition as aresult ofstandards; onthe other hand, it directs the Attorney General to gauge the impact, ifany, ofthat effect.

In order to assist the Attorney General in making such a determination, DOEprovided the Attorney General with copies ofthe October 5,2000, NOPR and the TSD for review. The Attorney General's determination was reprinted and discussed in the preamble to the January 22

.«~~ 

### ~~~42 ~~N: \wpdata\airconditionerrule.atd wpd 42 June 29, 2001 (3:07PM) EE..RM/STD..98-440

## -:t-,1**~** 

## , As discussed in the October 5,2000NOPR, section 325(0)(3)(8) ofEPCA prohibits DOE from adopting a standard for a product ifthat standard would not result in "significant" energy savings. The energy savings for the standard levels DOE is proposing today are non-trivial

- indeed they are substantial

- and therefore we considerthem "significant" within the meaning of section 325 ofthe Act.

4. Lessening ofUtility orPerformance ofProducts This factor cannotbe quantified. In establishing classes ofproducts, DOE has attempted to eliminate any degradation ofutility orperformance inthe products covered by today's proposed rule. Attributes that affect utility include the product's ability to cool and dehumidify. In some applications, noise levels may also be an aspect ofutility. Product size or configuration
can also be considered utility ifa change in size would cause the consumerto install the product in a location or in a mannerinconsistent with the consumer'spreferences.

5. Impact ofLessening ofCompetition This economicjustification factor has two aspects: on the one hand, it assumes that there could be some lessening ofcompetition as a result ofstandards; on the other hand, it directs the Attorney General to gauge the impact, ifany, ofthat effect.

In orderto assist the Attorney General in making such a determination, DOE provided the Attorney General with copies ofthe October 5, 2000, NOPR and the TSD for review. The Attorney General's determination was reprinted and discussed in the preamble to the January 22
42 N:lwpdata\aircondilionerrule.atd.wpd June 29. 2001 (3:07PM)

### final rule. 66 FR 7176, 7199-200. EE-RM/STD-98-440 - c%,:Z3
DOE, as part ofits review ofthis rulemaking, invited theAttorney General to submit supplemental views on the January 22 final rule. The Department ofJustice provided brief written comments as towhether the final rule effectively removed their concerns regarding possible lessening ofcompetition that could result from the October 5proposed standards.
The Department ofJustice concluded thatthe 13 SEER standards for heat pumps and air conditioners still presented anti-competitive concerns. More specifically, the Department of Justice concluded that while the final rule's exclusion ofniche products might alleviate competitive problems for manufacturers ofthose products, the Department ofJustice remained concerned about the impact ofthe final rule on manufacturers ofstandard equipment who could notmake 13 SEER equipment that would fit into space-constrained sites. The Department of Justice also concluded the final rule would have a disproportionate impact on smaller manufacturers ofheat pumps. In a footnote, the Department ofJustice stated that for some small manufacturers ofboth heat pumps and air conditioners, 100 percent oftheir product lines would fail tomeet the 13 SEER standard. Finally, the Department ofJustice opined that the 13 SEER standard for air conditioners presents the same kinds ofanti-competitive problems as the 13 SEER standard for heat pumps, and urged DOE to adopt a 12 SEER standard for all products covered by the rule.

The Department ofJustice's comments do notprovide sufficient information to permit

N:\wpdata'aircondiioncrmle atd wpd 

### 43 June 29, 2001 (3:07PM) [mal rule. 66 FR 7176, 7199-200. EE-RM/STD-98-440 - 

## it-

# e:<**~~** DOE, as part ofits review ofthis rulemaking, invitedtheAttorney General to submit supplemental views on the January 22 final rule. The Department ofJusticeprovided brief written comments as to whetherthe final rule effectively removed their concerns regarding possible lessening ofcompetition that could result from the October 5 proposed standards.

TheDepartment ofJustice concludedthatthe 13 SEER standards for heatpumps and air conditioners still presented anti-competitive concerns. More specifically, the Department of Justice concluded that while the final rule's exclusion ofniche products might alleviate competitive problems for manufacturers ofthose products, the Department ofJustice remained concerned about the impact ofthe final rule on manufacturers ofstandard equipment who could not make 13 SEER equipment that would fitinto space-constrained sites. The Department of Justice also concluded the final rule would have a disproportionate impact on smaller manufacturers ofheatpumps. In a footnote, the Department ofJustice stated that for some small manufacturers ofbothheat pumps and air conditioners, 100 percent oftheir product lines would fail to meetthe 13 SEER standard. Finally, the Department ofJustice opined that the 13 SEER standard for air conditioners presents the same kinds ofanti-competitiveproblems as the 13 SEER standard for heat pumps, and urged DOEto adopt a 12 SEER standard for all products covered by the rule.

The Department ofJustice's comments do not provide sufficient information to permit
43 N:lwpdata\airconditionerrule.atd.wpd June 29, 2001 (3:07PM)

### EE-RM/STD-98-440- t-o 3
. DOE to validate their concerns about the potential anti-competitive effects ofthe January 22 final rule. For example, it appears that the Department ofJustice is drawing atechnical distinction between "niche" products and "space-constrained" products. DOE does not draw the same distinction. Therefore, the Department ofJustice comment does not explain why the provision in the January 22 finalrule that deferred setting standards on space-constrained products would not satisfy their concerns about impacts on the manufacturers ofnicheproducts. With respect tothe potential disproportionate impact ofthe final rule on small manufacturers, we agree that there are some small manufacturers who currently have no conventional (i.e. not space-constrained) products that would meet the standards proposed in the January 22 final rule. That factor would add to the disproportionate impact on those manufacturers. However, we are unable to construe from the Department ofJustice comment to what extent and by what mechanism the disproportionate impact would necessarily lead to any noticeable lessening ofcompetition. See also Section VI.C. for further discussion ofDOE's assessment ofimpacts on small manufacturers in the January 22 final rule.

DOE will submit thisproposed rule tothe Department ofJustice for comment, and, at the
same time, invite the Department ofJustice to address several questions DOE has regarding the Department's interpretation ofthe final rule and how itwould affect manufacturers. DOE invites the public to submit views and information regarding the potential anti-competitive impact of today's proposed rule.

N:\wpdala\airconditioncrrule.atd wpd 44 June 29, 2001 (3 07PM) 

### EE-RM/STD-98-440-

# it- o{OZ3 . DOE to validate their concerns about the potential anti-competitive effects ofthe January 22 final rule. Forexample, it appears that the Department ofJustice is drawing a technical distinction between "niche"products and "space-constrained"products. DOE does not draw the same distinction. Therefore, the Department ofJustice comment does not explain why the provision in theJanuary 22 final rule that deferred setting standards on space-constrained products would not satisfy their concerns about impacts onthe manufacturers ofniche products. With respect to the potential disproportionate impact ofthe final rule on small manufacturers, we agree that there are
some small manufacturers who currently have no conventional (i.e. not space-constrained) productsthat would meet the standards proposed in the January 22 final rule. That factor would add to the disproportionate impact onthose manufacturers. However,we are unable to construe from the Department ofJustice commentto what extent and by what mechanism the disproportionate impact would necessarily lead to any noticeable lessening ofcompetition. See also SectionVI.c. for further discussion ofDOE's assessment ofimpacts on small manufacturers in the January 22 final rule.

DOE will submitthisproposed rule to the Department ofJustice for comment, and, at the
same time, invite the Department ofJustice to address several questions DOE has regarding the Department's interpretation ofthe final rule and how it would affect manufacturers. DOE invites the public to submit views and information regarding the potential anti-competitive impact of today'sproposed rule.



### 44 N:Iwpdalalaircondilioncrrulc.ald.wpd June 29. 2001 (307PM)

### EE-RM/STD-98-440 -_ , , 6. Need ofTheNation to Conserve Energy The Department recognizes that energy conservation benefits the nation in several important ways. Enhanced energy efficiency improves the nation's energy security, strengthens the economy, and reduces theenvironmental impacts ofenergy production. As part ofthe analysis supporting today'sproposed rule, DOE estimated energy savings and the national consumer benefits and estimated reduction in emissions ofpollutants and greenhouse gases resulting from those energy savings. See the October 5,2000 NOPR for a discussion ofhowthese standards affect energy savings and those benefits. 65 FR 59622-3. The amount ofenergy savings ultimately associated with aparticular standard level is also affected by the effect ofa given standard on competition and consumer cost. Selecting a standard level should take into account manufacturer

- and therefore inevitably consumer - costs, in orderto encourage robust competition and heightened introduction ofnewer, more efficient units into the inventory ofunits available forpurchase and use by consumers.

7. Other Factors Section 325(o) ofEPCA allows the Secretary ofEnergy, in determining whether a standard is economicallyjustified, toconsider any other factors that the Secretary deemsto be relevant (42 U.S.C. 6295(o)(2)(B)(i)(VI)). Under thisprovision, DOE considered thepotential improvement to the reliability ofthe electrical system and health effects caused by foregone air conditioner purchases. These issues are discussed in Sections IV.B.3. above, as well as in the October 5,2000 NOPR (65 FR 59605) and theJanuary 22 final rule (66 FR 7195). The Utility

.~~~~~45 r N:\wpdata\aircondiionerrule atd. pd 

### 45 ,June 29, 2001 (3:07PM) EE-RM/STD-98-440 -

## ~~3 . 6. Need ofThe Nation to Conserve Energy The Department recognizes that energy conservation benefitsthe nation in several important ways. Enhanced energy efficiency improves the nation's energy security, strengthens the economy, and reduces the environmental impacts ofenergy production. As part ofthe analysis supporting today'sproposed rule, DOE estimated energy savings and the national consumer benefits and estimated reduction in emissions ofpollutants and greenhouse gases resulting from those energy savings. See the October 5, 2000 NOPRfor a discussion ofhowthese standards affect energy savings and those benefits. 65 FR59622-3. The amount ofenergy savings ultimately associated with aparticular standard level is also affected by the effect ofa given standard on competition and consumercost. Selecting a standard level should take into account manufacturer

- and therefore inevitably consumer- costs, in orderto encourage robust competition and heightened introduction ofnewer, more efficient units into the inventory ofunits available for purchase and use by consumers.

7. Other Factors Section 325(0) ofEPCA allows the Secretary ofEnergy, in determining whether a standard is economically**jus~ified,** toconsider any other factors that the Secretary deems to be relevant (42 U.S.C. 6295(0)(2)(B)(i)(VI». Under thisprovision, DOE considered the potential improvement to the reliability ofthe electrical system and health effects caused by foregone air conditionerpurchases. These issues are discussed in Sections IV.B.3. above, as well as in the October5,2000NOPR (65 FR 59605) and the January 22 final rule (66 FR 7195). The Utility
45 N:lwpdatalairconditionenule.atd.wpd June 29, 2001 (3:07PM)

### EE-RM/STD-98-440 -4-I. Impacts Analysis in Chapter 11 ofthe TSDalso provides thetechnical analysis estimating the effects ofadopting new efficiency standards on installed generation capacity.

E. Methodology Used in DOE Analyses For thisproposed rule, the methodologies used to evaluate the seven factors described above are unchanged from those used inthe analyses that DOE relied on forthe October 5 proposed rule andthe January 22 final rule. DOE's methodology isdiscussed inthe October 5, 2000 NOPR (65 FR 59594-97) and theJanuary 22 final rule (66 FR 7173-74). Additionally, the TSDthat accompanies this rulemaking provides a detailed description ofevery aspect ofthe various analytical methodologies used.

V. Analytical Results and Conclusions A. Overview ofAnalytical Results 1. General 

### Although DOE has accorded different weightto certain factors in proposing this rule, the underlying analyses, and the results derived from those analyses, are unchanged from those presented in the January 22 final rule. Briefly, DOE examined five standard levels. Table 3 presents the trial standards levels analyzed and the corresponding efficiency level for each class of product. Trial Standard Level 5is the Max Tech Level for each class ofproduct. Trial Standard Level 4was the one DOE adopted forthe standards set forth in the January 22 final rule. Trial Standard Level 2 isthe one DOE is now proposing.

N:\wpdata\airconditionerruleatd.w pd 

### 46 June 29, 2001 (3:07PM) EE-RM/STD-98-440 

# -#0<43. ImpactsAnalysisin Chapter 11 ofthe TSDalso provides the technical analysis estimating the effects ofadopting newefficiency standards on installed generation capacity.

E. Methodology Used in DOEAnalyses Forthis proposed rule, the methodologies used to evaluate the seven factors described above are unchanged from thoseused 

### in the analyses that DOErelied onfor the October 

### 5 proposed rule andtheJanuary 22fInal rule. DOE'smethodology isdiscussed inthe October

### 5, 2000 NOPR (65 FR59594-97) andtheJanuary 22 final rule (66 FR7173-74). Additionally, the TSDthat accompanies thisrulemakingprovides a detailed description ofevery aspect ofthe various analytical methodologies used.



## v. Analytical Results and Conclusions A. Overview ofAnalvtical Results 1. General Although DOE has accorded different weight to certain factors in proposing this rule, the underlying analyses, and the results derived from those analyses, are unchanged from those presented in the January 22 final rule. Briefly, DOE examined five standard levels. Table 3 presents the trial standards levels analyzed and the corresponding efficiency level for each class of product. Trial Standard LevelS is the Max Tech Level for each class ofproduct. Trial Standard Level 4 wasthe one DOEadopted for the standards setforth in the January 22 final rule. Trial Standard Level 2 isthe one DOE is nowproposing.

46 N:\"p<iala'.aircondilionerrule.atd.wpd June 29, 2001 (3:07PM)

### EE-RM/STD-98-440-- # ? c:>3
. Table3: Trial StandardsLevels forCentral AirConditioners and Heat Pumps (SEER)
TrialStandard Split Air Packaged Air Split Heat Packaged Level Conditioners Conditioners Pumps Heat Pumps 1 11 11 11 11 2 12 12 12 12 3 12 12 13 13 4 13 13 13 13 5 18 18 18 18


### For each trial standard examined, several different scenarios were analyzed consisting of variations on: (1)electricity price and housing projections; (2)equipment efficiency distributions; (3)manufacturer cost estimates; and (4) societal discount rate. Electricity price and housing projections were based on three different forecasts from the Energy Information Agency's 2000 Annual Energy Outlook (AEO): (1)Reference Case, (2)High Growth Case, and (3)Low Growth Case. DOE analyzed three efficiency scenarios, each ofwhich assumed a different efficiency distribution after new standards would take effect: (1)NAECA scenario, (2)Roll-up scenario, and (3) Shift scenario. See October 5,2000, NOPR for an explanation ofthe three scenarios. 65 FR 59596 (footnotes 10 through 12 and accompanying text). Under the standard levels in today's proposed rule, DOE believes that theNAECA scenario most closely represents the likeliest impact ofthe new standards, as explained in Chapter 8 ofthe TSD. DOE analyzed two manufacturer cost scenarios: (1)based on reverse engineering estimates, and (2)based on ARIprovided mean cost estimates. For the reasons expressed in thepreamble tothe January 22 final rule, DOE expects manufacturer costs under the proposed standards will lie closer to the estimates produced through DOE's reverse engineering analysis, which lie between ARI's minimum and

N:\wpdata'airconditionenule atd.wpd 47 June 29, 2001 (3:07PM) EE-RM/STD-98-440
_ 

# #-**C::::?~3** 

## . Table 3: Trial StandardsLevels for CentralAirConditioners and Heat Pumps (SEER)
Trial Standard Split Air Packaged Air SplitHeat Packaged Level Conditioners Conditioners Pumps Heat Pumps I 11 11 1l )] 2 12 12 12 12 3 12 ]2 13 13 4 13 13 13 13 S 18 18 ]8 18
Foreach trial standard examined, several different scenarios were analyzed consisting of variations on: (1) electricity price and housing projections; (2) equipment efficiency distributions; (3) manufacturer cost estimates; and (4) societal discount rate. Electricity price and housing projections were based on three different forecasts from the Energy Information Agency's 2000 Annual Energy Outlook (AEO): (1) Reference Case, (2) High Growth Case, and (3) Low Growth Case. DOE analyzed three efficiency scenarios, each ofwhich assumed a different efficiency distribution after new standards would take effect: (1) NAECA scenario, (2) Roll-up scenario, and (3) Shift scenario. See October 5, 2000,NOPRfor an explanation ofthe three scenarios. 65 FR 59596 (footnotes 10 through 12 and accompanying text). Underthe standard levels in today's proposed rule, DOE believes thatthe NAECA scenario most closely represents the likeliest impact ofthe new standards, as explained in Chapter 8 ofthe TSD. DOE analyzed two manufacturer cost scenarios: (1) based on reverse engineering estimates, and (2) based onARIprovided mean cost estimates. Forthe reasons expressed in the preamble to the January 22 final rule, DOE expects manufacturercosts underthe proposed standards will lie closerto the estimates produced through DOE's reverse engineering analysis, which lie between ARI's minimum and 47 N:\wpdala\aircondilionelT\lle.ald.wpd June 29, 2001 (3:07PM)

### EE-RM/STD-98-440 --. t c,3 ARI's mean cost values. 66 FR 7177-78. DOE assumed a societal discount rate of7 percent for calculating net present value (NPV). However, a 3percent value was investigated as an alternative scenario in accordance with the Office ofManagement and Budget's (OMB) Guidelines to Standardize Measures ofCosts and Benefits and the Format ofAccounting Statements.

2. Through-the-Wall Products In the October 5 proposed rule, DOE proposed to establish a separate product class for through-the-wall (TTW) products with a minimum I I SEER for air conditioners and 7.1 HSPF for heatpumps, noting that they face particularly acute size constraints that make increasing their efficiency more difficult compared to conventional products, or even other space-constrained products. In comments received responding to the proposed standards, Carrier suggested that such a differential could open a loophole and cause TTW products to be broadly applied in traditionally non-TTW applications. (Carrier #92 at p.9). National Comfort Products suggested that they did not believe that their product could attain even the proposed 11 SEER standard and that the DOE did not conduct sufficient analysis to support theproposed level. (NCP #77 at p.3, 4). However, Armstrong commented that they did believe their TTW products could attain 11 SEER, although they had concerns about their larger capacity products. (Armstrong #86 at p. 3). In response to the comments, DOE conducted additional analysis on the cost and technical issues related to TTW products. The analysis is described in detail in Appendix L ofthe TSD and is summarized here.

C \WINDOWS'TEMP\airconditionermle atd pd 48 July 2, 2001 (11:14AM) EE-RM/STD-98-440 

## -:it**~.q3** ARl'smean cost values. 66 FR 7177-78. DOE assumed a societal discount rate of7percent for calculating net present value (NPV). However, a 3 percent value was investigated as an alternative scenario in accordance with the Office ofManagement and Budget's (OMB) Guidelines to Standardize Measures ofCosts and Benefits and the Format ofAccounting Statements.

2. Through-the-Wall Products In the October5 proposedrule, DOEproposed to establish a separate product class for through-the-wall (TTW) products with a minimum ]] SEER for air conditioners and 7.1 HSPF for heatpumps, noting that they face particularly acute size constraints that make increasing their efficiency more difficult compared to conventional products, oreven other space-constrained products. In comments received responding to the proposed standards, Carrier suggested that such a differential could open a loophole and cause TTW products to be broadly applied in traditionally non-TTW applications. (Carrier#92 at p.9). National ComfortProducts suggested that they did not believe that theirproduct could attain even the proposed 11 SEER standard and that the DOE did not conduct sufficient analysis to support the proposed level. (NCP #77 atp.3, 4). However, Armstrong commented that they did believe their TTWproducts could attain I I SEER, although they had concerns about their larger capacity products. (Armstrong #86 atp. 3). In responseto the comments, DOE conducted additional analysis on the cost and technical issues related to TTWproducts. The analysis is described in detail in Appendix L ofthe TSD and is summarized here. 

### 48 C \WINDOWS\TEMPlairconditionerrule.3td wpd July 2. 2001 (1I14AM)

### EE-RM/STD-98-440 -- 'c~3 DOE performed a design assessment on two split TTW systems and one packaged TTW system. All systems are designed primarily for the replacement market and fitthe physical definition ofTTW equipment proposed in the October 5proposed rule. The design assessment sought to identify the cost and efficiency impacts ofemploying commonly applied techniques to improve efficiency includingreduction ofair leakage and improvement in airflow, utilizing more efficient compression and fan motors, and increasing heat exchanger surface area. Emerging technologies and modulating technologies were not considered since they are not likely tobe applied in conventional baseline equipment. The cost estimation for the analysis was based on a modified version ofthereverse engineering cost models developed as part ofthis rulemaking for conventional products. The performance impacts ofemploying various design options were estimated utilizing a spreadsheet model populated with actual performance data and engineering heuristics. The analysis concluded that utilizing commonly applied technologies and designs, the most constrained TTW split-system analysis could increase its SEER rating from 10.0 SEER to as high as 11.4 SEER, and the packaged system analysis could increase its SEER rating from 9.7 SEER to 10.6 SEER. Employing all improvements would add $106 and $129 to the retail price of the equipment, respectively, comparable to the increases expected in conventional equipment moving to a 12 SEER standard.

3. Other Space-Constrained Products Some products, other than through-the-wall products, face space-constraints. However, as discussed in the October 5NOPR, DOE proposed to conclude that it is economically justified and

.~49 c„ WC 'WINDOWS'TEMPNaircondilionerrule.atd.wpd 49 uJuly 2, 2001 (11:14AM) EE-RM/STD-98-440 -

### -:tI=-c:l,~ DOE perfonned a design assessment on two split TTW systems and one packaged TTW system. All systems are designed primarily for the replacement market and fit thephysical definition ofTTW equipmentproposed in the October 5 proposed rule. The design assessment sought to identify the cost and efficiency impacts ofemploying commonly applied techniques to improve efficiency includingreduction ofairleakage and improvement in airflow, utilizing more efficient compression and fan motors, and increasing heat exchangersurface area. Emerging technologies and modulating technologies were not considered since they are not likely tobe applied in conventional baseline equipment. The cost estimation for the analysis was based on a modified version ofthe reverse engineering cost models deve10ped aspart ofthis rulemaking for conventional products. The perfonnance impacts ofemploying various design options were estimated utilizing a spreadsheet model populated with actual perfonnance data and engineering heuristics. The analysis concluded thatutilizing commonly applied technologies and designs, the most constrained TTW split-system analysis could increase its SEERrating from 10.0 SEERto as high as 11.4 SEER, and the packaged system analysis could increase its SEERrating from 9.7 SEER to 10.6 SEER. Employing all improvements would add $106 and $129 to the retail priceof the equipment. respectively, comparable to the increases expected in conventional equipment moving to a 12 SEER standard.

3. Other Space-Constrained Products Some products, otherthanthrough-the-wall products, face space-constraints. However, as discussed inthe October 5NOPR, DOE proposed to conclude that it is economicallyjustified and 

### 49 C 'WfNDOWS'TEMPlaircondilionerrule.atd.wpd July 2. 2001 (II I 4AM)

### EE-RM/STD-98-440 - --- 3 technologically feasible for all ofthose products to comply with the same efficiency requirements
as conventional products. Comments received in response to that proposal focused mainly on the 13 SEER heat pump requirement. After reviewing the comments; DOE again proposes to conclude that a 12 SEER requirement is the maximum technologically feasible and economically justified level for all space-constrained products except through-the-wall products. DOE is interested inreceiving further comment on this issue.

B. Re-weighting ofFactors

1. Re-weighting ofBurdens on Consumers The record associated with this rulemaking includes numerous examples ofdiscussions of the distributions, extent, and type ofburdens on the typical consumer as well as on low-income
consumers. 65 FR 59623-59624 and 66 FR 7189-7190. In the January 22 notice offinal rulemaking, DOE determined that most consumers, including low-income consumers, would likely benefit financially over the life ofthe equipment, but that all consumers would bear higher initial costs, and low-income consumers would not benefit financially as much as would the average consumer. DOE also recognized that the payback periods associated with the January 22 final rule are long, and that many consumers, though not the majority, would never recover the higher first costs in the form of savings in their utility bills. However, the previous Administration concluded that the national energy savings and the slight financial benefit to the typical consumer overrode any negative and maldistributed consumer impacts.

C:\WINDOWS TEMPairconditionerrule.atdwpd 50 July 2,2001 ( :14AM) EE-RM/STD-98-440

### -~~3 technologically feasible for all ofthose productsto comply with the same efficiency requirements
as conventional products. Commentsreceived in response to that proposal focused mainly on the 13 SEERheat pump requirement.. Afterreviewing the comments; 

### DOEagain proposesto conclude that a 

### J2 SEERrequirement is the maximum technologically feasible and economically justified level for all space-constrainedproducts except**through-the-~all** products. DOE is interested in receiving further comment on this issue.

B. Re-weighting ofFactors

1. Re-weighting ofBurdens on Consumers The record associated with thisruJemaking includes numerous examples ofdiscussions of the distributions, extent, and type ofburdens on the typical consumer as well as on low-income
consumers. 65 FR 59623-59624 and 66 FR 7189-7190. In theJanuary 22 notice offinal rulemaking, DOE determined that most consumers, including low-income consumers, would likely benefit financially over the life ofthe equipment, but that all consumers would bearhigher initial costs, and low-income consumers would not benefit financially as much as would the average Consumer. DOE also recognized that the payback periods associated with the January 22 final rule are long, and that many consumers, though not the majority, would never recoverthe higher first costs in the form ofsavings in their utility bills. However,the previous Administration concludedthatthe national energy savings and the slight financial benefit tothe typical consumer overrode any negative and maldistributed consumer impacts.

50 C.\WINDOWS TEMP.a.rconditionerrule.atd.wpd July 2. 2001 (II: 14AM)

### EE-RM/STD-98-440 -= c= Energy conservation is an important part ofthe Bush Administration's energy policy, but this Administration is particularly sensitive to burdens, and potential burdens, on consumers. The benefits ofthe standards adopted in the January 22 final rule would accrue to a much smaller fraction ofconsumers than is the case for recent standards for other products, particularly low income consumers. Today's proposed rule attempts to mitigate those burdens by reducing the increase in equipment cost compared tothe 13 SEER requirements issued on January 22. Overall, the proposed standards would reduce the burdens on consumers while still providing substantial benefit to the nation in the form ofenergy savings. 2. Re-weighting ofBurdens on Manufacturers
a. Cumulative Regulatory Burden Although DOE included information on the cumulative burden ofFederal and State regulations on air conditioner manufacturers in the TSD, DOE did not fully explain how it considered the results of its study in the preamble statement ofbasis for the January 22 final rule. See discussion in Section III ofthis SUPPLEMENTARY INFORMATION. DOE considers that a proposed standard is not economicallyjustified ifit contributes to an unacceptable cumulative regulatory burden. Section III.B.2.a. above provides a summary ofthe cumulative regulatory burden analysis contained in Section 8.6 ofthe TSD. DOE concluded that the burden on manufacturers due to all other recent or imminent federal regulations exceeds $479 million. Revising the standard for air conditioner and heat pump efficiency would contribute up to an additional $300 million, bringing the total cumulative regulatory burden to as high as $779 million. In light ofthat heavy burden, DOE today is proposing standards that would reduce the expected financial burden on manufacturers from all new Federal and State regulations by $144

C:\WINDO'S'.TE MPaircondilionerrule atd wpd 51 Jul! 2. 2001 (11:14AM) EE·RM/STD-98-440

## -~**~~** Energy conservation is an important part ofthe Bush Administration's energy policy, but this Administration is partiwlarly sensitive to burdens, and potential burdens, on wnsumers. The benefits ofthe standards adopted in the January 22 final rule would accrue to a much smaller fraction ofconsumers than is the case for recent standards for otherproducts, particularly low
. income consumers. Tooay's proposed rule attemptsto mitigate those burdens by reducing the increase in equipment cost comparedto the 13 SEERrequirements issued on January 22. Overall, the proposed standards wouldreducethe burdens on consumerswhile still providing substantial benefitto the nation in the fonn ofenergy savings. 2. Re-weighting ofBurdens on Manufacturers
a. Cumulative RegulatoD' Burden Although DOE included infonnation on the cumulative burden ofFederal and State regulations on air conditionermanufacturers in the TSD, DOE did**n~t** fully explain howit consideredthe results ofits study in the preamble statement ofbasis for the January 22 final rule. See discussion in Section III ofthis SUPPLEMENTARY INFORMATION. DOE considers that a proposed standard is not economicallyjustified ifit contributes to an unacceptable cumulative regulatory burden. Section III.B.2.a. above provides a summary ofthe cumulative regulatory burden analysis contained in Section 8.6 ofthe TSD. DOE concluded that the burden on manufacturers due to all other recent orimminent federal regulations exceeds $479 million. Revising the standard for air conditioner and heat pump efficiency would contribute up to an additional $300 million, bringingthe total cumulative regulatory burden to as high as $779 million. In light ofthat heavy burden, DOE today is proposing standardsthat would reduce the expected financial burden on manufacturers from all new Federal and State regulations by $144


### 51 C:IWINDOWS'.TEMP·.aJrcondllionerrule.ald.wpd July 2. 2001 (11 14AM)

### EE-RM/STD-98-440' 0 3 million compared to the 13 SEER final rule ofJanuary 22.

b. Financial Burdens Associated with New Efficiency Standards In addition to cumulative regulatory burden, both the TSD and public comments warn that too stringent efficiency standards would result in unacceptable financial burdens for some major manufacturers and could accelerate consolidation in the central air conditioning and heat pump industry. As explained in Section III.B.2.b. ofthis SUPPLEMENTARY INFORMATION, the 13 SEER standards in the January 22 final rule are projected by the TSD to result in a negative cash flow for the industry in the year preceding the new standards' enforcement. However, the standards would impose far greater financial burdens on manufacturers whose operating costs exceed the industry average. Those manufacturers typically engage in more research and development or provide additional sales or service support than do their lower operating cost competitors. The 12 SEER standard that DOE proposes today would reduce the maldistribution offinancial impacts on manufacturers and would allow manufacturers to maintain apositive cash flow.
c. Conclusions Regarding Conventional Products EPCA specifies that any new or amended energy conservation standard forany type (or class) ofcovered product shall be designed to achieve the maximum improvement in energy efficiency which the Secretary determines is technologically feasible and economically justified (42 U.S.C. 6295(o)(2)(A)). In determining whether a standard is economicallyjustified, the Secretary must determine whether the benefits ofthe standard exceed its burdens (42 U.S.C. 6295(o)(2)(B)(i)). The amended standard must "result in significant conservation ofenergy".

C:\WINDOWS'.TEMPairconditionerrmle.atd wpd 52 July 2 ,2001 (1:14AM) 

### EE-RM/STD-98-440 - 

# :/P-C:<**~3** · million compared to the 13 SEERfinal rule ofJanuary 22.

b. Financial Burdens Associated with NewEfficiency Standards In addition to cumulative regulator:' burden, both the TSD and public comments warn that too stringent efficiency standards would result in unacceptable financial burdens for some major manufacturers and could accelerate consolidation in the central airconditioning and heat pump industry. 

### As explained in Section JII.B.2.b. ofthis SUPPLEMENTARY INFORMATION, the 

### 13 SEER standards in the January 22 final rule are projected by the TSD to result in a negative cash flow for the industry in the yearpreceding the new standards' enforcement. However, the standards would impose far greaterfinancial burdens on manufacturers whose operating costs exceed the industry average. Those manufacturers typically engage in more research and development orprovide additional sales or service support than do their lower operating cost competitors. The 12 SEER standard that DOE proposes today would reduce the maldistribution offinancial impacts on manufacturers and would allow manufacturersto maintain apositive cash flow.
c. Conclusions Reearding Conventional Products EPCA specifies that any new or amended energy conservation standard for any type (or class) ofcovered product shall be designed to achieve the maximum improvement in energy efficiency which the Secretary determines is technologically feasible and economicallyjustified (42 U.S.c. 6295(0)(2)(A». In determining whether a standard is economicallyjustified,the Secretary must determine whetherthe benefits ofthe standard exceed its burdens (42 U.S.C. 6295(0)(2)(B)(i». The amended standard must "result in significant conservation ofenergy".
52 C IWINDOWS\TEMPlairconditionerrule.atd.wpd July 2. 2001 (11:l4AM)

### (42 U.S.C. 6295(o)(3)(B)). EE-RM/STD-98-440 - $ 3 >



### In conducting its analysis, DOE considers the impacts ofstandards beginning with the .Max Tech Level, i.e., Trial Standard Level 5 in this rulemaking. DOE then considers less efficient levels until itreaches the level which is technologically feasible and economically justified.

To aid the reader in the discussion ofthe benefits and burdens ofthe trial standard levels, DOE includes a summary ofthe analysis results for all ofthe levels in Table 4.9 Table 4 presents a summary ofquantitative analysis results for each trial standard level based on the assumptions DOE considers most plausible. These include manufacturing cost estimates from the
reverse engineering, an 18.4-year equipment lifetime with one compressor replacement at 14 years, and electricity prices based on the AEO2000 Reference Case.

All cumulative effects that are not monetary are not discounted Monetary effects are discounted to 1998 dollars C :\INDOWS &TEMP'airconditionerrule.atd lpd 53 Jul. 2.2001 (11:14AM) 

### (42 U.S.c. 6295(0)(3)(B». 

### EE-RM/STD-98-440

# -::tte:? 

# t:R:3.

In conducting its analysis, DOE considers the impacts ofstandards beginning with the .Max Tech Level, i.e., Trial Standard Level 5 in this rulemaking. DOE then considers less efficient levelsuntil itreaches the level which is technological1y feasible and economically justified.

To aid the reader in the discussion ofthe benefits and burdens ofthe trial standard levels, DOE includes a sununary ofthe analysis results for all ofthe levels in Table4.9 Table 4 presents a summary ofquantitative analysis results for each trial standard level based onthe assumptions DOE considers most plausible. These include manufacturing cost estimates from the
reverse engineering, an l8.4-yearequipment lifetime with one compressor replacement at 14 years, and electricity prices based onthe AE02000Reference Case.

9
.

All cumulallve effects that are not monetary are not discounted Monetary effects are discounted \0 1998 dollars 

### 53 CIWlNDOW$.TEMP\airconditionerrule.atd.wpd July 2, 2001 (11I4AM)

### EE-RM/STD-98-440-* o7 ' Table 4: Summary ofQuantitative Results' Trial Std 1 TrialStd 2 TrialStd 3 Trial Std 4 TrialStd 5 Primary Energy Saved (quads) 1.7 3.0 3.5 4.2 8.8 Generation Capacity Offset (GW) 2 6.5 10.6 12.4 15.5 28.8 NPV ($billion) 7% Discount Rate | 2 2 | 1 | 1 (10) Industry Impacts (million S)35

Cumulative Change in Industry (62) (179) (199) (300)

- NPV

Differential impact between Industry Sub-groups4 7 5 2 3 8 2 6 1 4 2 9

Cumulative Regulatory Burden on ( (>541) (>658) (>678) (>779) Industry '

Minimum net cash flow 62 31 18 (3) Life-Cycle Cost Savings ($)5

Split AC 75 113 13 113 (137) Packaged AC 78 163 163 29 (276) Split HP 209 365 372 372 (41) Packaged HP 207 421 353 353 166 Equipment Price Increase ($)

Split AC 91 213 213 335 754 Packaged AC 89 158 158 425 859 Split HP 55 144 332 332 1039 Packaged Heat Pump 92 149 435 435 985 Fraction ofall Consumers with Net LCC Losses >2% (%)

Split AC 2 25 25 39 68 Packaged AC 1 9 9 52 73 Split HP 0 0 6 6 57 Packaged Heat Pump 0 0 12 12 48 Fraction ofLow Income Consumers with Net LCC Losses >2% (%)

Split AC 5 34 34 50 77 Packaged AC 2 14 14 61 80 Split HP 0 0 12 12 75 Packaged Heat Pump 0 0 20 20 66 Parentheses indicate negative (-)values. Unless otherwise noted, Trial Standard Levels I - 3refer totheNAECA efficiency scenario, and Trial Standard Levels 4 and 5refer to the Roll-up efficiency scenario. 2 Values based on NAECA efficiency scenario. 3Not calculated atTrial Standard Level 5. 4The benefit accruing to the Higher Operating Cost subgroup compared to the Lower Operating Cost subgroup 5Negative values indicate LCC increases.



### In addition to the quantitative results, DOE also considers otherburdens and benefits that

54 C\WINDOWS'TENM'airconditionerrule ad.wpd -~~5 ) 

### ~~~~~~~4 ~Jul] 2.2001 (11:14AM) EE-RM/STD-98-440-

# -:Jr

# :2..**~**

# 3 · Table4: Summary ofQuantitative Results I Trial Std J Trial Std 2 Trial Std 3 Trial Std 4 Trial Std 5 Primary Energy Saved (quads) 1.7 3.0 3.5 4.2 8.8 Generation Capacity Offset (GW)2 6.5 10.6 12.4. 15.5 28.8 NPV ($billion) 7% Discount Rate 2 2 1 1 (10) Industry Impacts (million S)J·s

Cumulative Change in Industry (62) (119) (199) (300) 

# - NPV

Differential impact between 75 238 261 429 

# - Industry**Suh-~roups4**

Cumulative Regulatory Burden on (>541) (>658) (>678) (>779) 

## - Industry

Minimum net cash flow 62 31 18 (3) 

# - Life-Cycle Cost Savings ($)s

Split AC 75 113 H3 113 (137) Packaged AC 78 163 163 29 (276) Split HP 209 365 372 372 (41) Packaged HP 207 421 353 353 166 Equipment Price Increase ($)

Split AC 91 213 113 335 754 Packaged AC 89 158 158 425 859 Split HP 55 144 332 332 1039 Packaged Heat Pump 92 149 435 435 985 Fraction ofall Consumers with Net LCC Losses >2% (%)

Split AC 2 25 25 39 68 Packaged AC I 9 9 52 73 Split HP 0 0 6 6 57 Packaged Heat Pump 0 0 12 12 48 Fraction ofLow Income Consumers with Net LCC Losses >2% (%)

Split AC 5 34 34 50 77 Packaged AC 2 14 14 61 80 Split HP 0 0 12 12 75 Packaged Heat Pump 0 0 20 20 66 I Parentheses mdlcate negatlve (-) values. Unless otherwIse noted, Tnal Standard Levels I - 3 refer to the NAECA effiCIency scenario, and Trial Standard Levels 4 and 5 referto the Roll-up efficiency scenario. 2Values based on NAECA efficiency scenario. J Not calculated at Trial Standard Level 5. 4 The benefit accruing to the Higher OperatingCost subgroup compared tothe LowerOperating Cost subgroup SNegative values indicate LCC increases.

In addition to the quantitative results, DOE also considers otherburdens and benefits"that
54 C·\WlNOOWS·TEI>IP'.aircond,lionerrule.atd.wpc! Jul) 2.2001 (l1:l4AM)

### EE-RM/STD-98-440_- ::°',, affect economic justification. The potential to improve the reliability ofthe electricity system is the major benefit DOE has not quantified explicitly. In areas where the occurrence ofblackouts (and brownouts) can be reduced through expansion ofsystem capacity, the economic value of avoided blackouts associated with reductions in peak load cannot exceed the value ofthe avoided capacity expansion. That value is already captured in DOE's analysis as savings in consumer utility bills. However, in areas that do not expect to be able tomaintain adequate capacity reserves, the value ofavoided blackouts associated with reductions in peak demand can far exceed the normal costs ofcapacity expansion.' 0



### DOE also recognizes that the adopted standards could result in additional unquantifiable burdens. These include a possible increase in health problems caused by consumers foregoing air conditioner purchases, a possible reduction in the ability ofthe product to dehumidify, a possible lessening ofcompetition, and possible difficulty in installing the new baseline products into replacement applications. Section IV ofthe preamble to the January 22 final rule discusses DOE'sresponse to comments regarding benefits and burdens.

First DOE considered Trial Standard Level 5, the Max Tech Level foreach offour classes ofproducts, representing uniform 18 SEER requirements. The manufacturing cost DOE assumes for Trial Standard Level 5 is equal to 15 SEER equipment, although DOE would expect that
'0 For instance, ifcapacity-related blackouts cost a region S1 billion, society would be willing to pay up to $1 billion to prevent them. Ifthose blackouts can be prevented through either a capacity expansion or a reduction in peak demand, and the new capacity would cost $100 million, the value ofthe reduction in peak demand can be no more than $100 million. Ifthe region is short on capacity and cannot add new capacity quickly, however, the same reduction in peak demand then can equal the value ofthe avoided blackout ($1 billion) since there is no feasible alternative. .~~55 -C:\WINDOWS\TEMP'aircondl ionerrule.aidwpd 55 .Iulyu 2 2001 (11:14AM) EE-RM/STD-98-440 -

# 4r--**~ ~3**  

# . affect economicjustification. The potential to improve the reliability ofthe electricity system is the majorbenefit DOE has not quantified explicitly. In areas where the occurrence ofblackouts (and brownouts) can bereduced through expansion ofsystem capacity, the economic value of avoided blackouts associated with reductions in peak load cannot exceed the value ofthe avoided capacity expansion. That value is already captured in DOE's analysis as savings in consumer utility bills. However, in areasthat do notexpectto be ableto maintain adequate capacity reserves, the value ofavoided blackouts associated with reductions inpeak demand can far exceed the normal costs ofcapacity expansion.10

DOE also recognizes that the adopted standards could result in additional unquantifiable burdens. These include a possible increase in health problems caused by consumers foregoing air conditionerpurchases, a possible reduction inthe ability oftheproduct to dehumidify, a possible lessening ofcompetition, and possible difficulty in installing the newbaseline products into replacement applications. Section IV ofthe

### preamble to the January 22 final 

### rule discusses DOE'sresponse to comments regarding benefits and burdens.

First DOE considered Trial Standard Level 5, the Max TechLevel for each offour classes ofproducts, representing uniform 18 SEERrequirements. Themanufacturing cost DOE assumes for Trial Standard Level 5 is equal to 15 SEERequipment, although DOEwould expect that

10 For instance, ifcapacity-related blackouts cost a region $1 billion, society would be willing to pay up to $1 billion to prevent them. Ifthose blackouts canbe prevented through either a capacity expansion or a reduction in peak demand, and the new capacity would cost $100 million, the value ofthe reduction in peak demand can be no morethan $100 million. Ifthe region is short on capacity and cannot add new capacity quickly, however, the same reduction in peak demand then can equal the value ofthe avoided blackout ($1 billion) since there is no feasible alternative. 55 C:IWJNDOWSITEMPlalTcond'lionerrule.ald.wpd July 2. 2001 (11 14AM)

### EE-RM/STD-98-440 

### -, c ,3?
. assumption to understate the cost and price ofthe product. Trial Standard Level 5 would likely
save 8.6 quads ofenergy which DOE considers significant. These savings would result in the avoidance ofapproximately 29 gigawatts (GW) ofinstalled generation capacity. For comparison, the generating capacity is equivalent to roughly 77 large, 400 megawatt, power plants," approximately 3.7 percent ofcurrent installed generating capacity and more than 13 percent ofthe anticipated growthin capacity needed by2020. The cumulative emissions reductions through 2020 include 63.0 Mt ofcarbon equivalent and 184.2 thousand metric tons (kt) ofNO, are also significant.

At Trial Standard Level 5, the average consumer would experience an increase in lifecycle cost. Compared to today's standards, purchasers ofsplit central air-conditioners, the predominate class ofcentral air conditioner with 65 percent ofthe sales ofcentral air conditioners and heat pumps, would most likely lose on average $137 over the life ofthe appliance. Purchasers ofsplit heat pumps, the predominate class ofheat pump, would most likely lose on average $41. Again, these results do not include the additional price the consumer would pay
over the price ofa 15 SEER product, which would increase the life-cycle cost considerably. Furthermore, for the nation as a whole, Trial Standard Level 5would result in a net cost of $10 billion in NPV. DOE did not calculate manufacturer impacts atthis trial standard level, determining based on preliminary evaluation that they would be severe and unacceptable.

DOE estimates 10 coal-fired power plants and 67 gas-fired power plants can be avoided. See TSD, Chapter 11 and Appendix H. C:\W'INDOWS\TEMPN airconditionmrule atd wpd 56 July 2 2001 (1114AM) assumption to understate the cost and price ofthe product. Trial Standard Level 5 would likely
save 8.6 quads ofenergy which DOE considers significant. These savings would result in the avoidance ofapproximately 29 gigawatts (GW) ofinstalled generation capacity. Forcomparison, the generating capacity is equivalentto roughly 77 large, 400 megawatt, powerplants,II approximately 3.7 percent ofcurrent installed generating capacity andmorethan 13 percent ofthe anticipated growthincapacity needed by2020. The cumulative emissions reductions through 2020 include 63.0 Mtofcarbon equivalent and 184.2thousand metric tons (kt) ofNOx are also significant.

At Trial Standard Level 5,the average consumerwould experience an increase in lifecycle cost. Compared to today's standards, purchasers ofsplit central air-conditioners, the predominate class ofcentral air conditionerwith 65 percent ofthe sales ofcentral air conditioners and heat pumps, would most likely lose on average $137 over the life ofthe appliance. Purchasers ofsplit heat pumps, the predominate class ofheat pump, would most likely lose on average $41. Again, these results do not include the additional price the consumerwould pay
overthe price ofa 15 SEER product, which would increase the life-cycle cost considerably. Furthermore, for the nation as a whole, Trial Standard Level 5 would result in a net cost of $10 billion in NPV. DOE did not calculate manufacturer impacts at thistrial standard level, determining based on preliminary evaluation that they would be severe and unacceptable.

II DOE estimates 10 coal-fired power plants and 67 gas-fired power plants can be avoided. See TSD, Chapter I I and Appendix H. 56 C:IWINDOW$ITEMPlairconditionerrulc.atd wpd July 2, 2001 (II 14AM)

### EE-RM/STD-98-440 -3 . DOE proposes to conclude that at Trial Standard Level 5, thebenefits ofenergy savings, generating capacity reductions and emission reductions would be outweighed by the negative economic impacts to the nation, to the vast majority ofconsumers and to the manufacturers. Consequently, DOE proposes to determine that Trial Standard Level 5, the Max Tech Level, is not economicallyjustified.
Next, DOE considered Trial Standard Level 4. This level specifies 13 SEER equipment for all product classes. In considering Trial Standard Level 4, DOE assumed the Roll-up efficiency scenario and reverse engineering cost estimates to be the most probable. (See Section 8.4.8 ofthe TSD forthe reasons DOE considers the Roll-up efficiency scenario most probable above Trial Standard Level 3 and the NAECA efficiency scenario most probable at Trial Standard Levels 1,2, and 3.) Primary energy savings would likely be 4.2 quads, which DOE considers significant. The estimated reduction in installed generating capacity is equivalent to avoiding the need for 53 large 400 megawatt powerplants, and reduced emissions would range up to 33 Mt of carbon equivalent and up to 85 kt ofNO,.'2



### At this standard level, the average purchaser ofa split system air conditioner, the predominate class with 65 percent ofall shipments, would see the installed price of$2236 rise to $2571, an increase of$335. Lower utility bills from the energy savings would repay this increase in 11.3 years and produce atotal saving with a net present value of$113 over the 18.4 year life of the product. The average purchaser ofa single package air conditioner, which represents 10

12Generating capacity, carbon, and NO, reductions based on NAECA efficiency scenario.

_ 

### ~~57_ C:\WINDOWS'TEMP'airconditionerrule.atdlwpd 57

/July 2.2001 (11:14AM) EE-RM/STD-98-440

### -4t=c:z..~3

# . DOE proposes to conclude that atTrial Standard Level 5, the benefits ofenergy savings, generating capacity reductions and emission reductions would be outweighed by the negative economic impacts to the nation, to the vast majority ofconsumers and to the manufacturers. Consequently,DOEproposes to detennine that Trial Standard Level 5, the Max Tech Level, is not economicallyjustified.

Next, DOEconsidered Trial Standard LevelA. This level specifies 13 SEER equipment for all product classes. In consideringTrial Standard Level 4, DOE assumed the Roll-up efficiency scenario and reverse engineering cost estimates to be the mostprobable. (See Section 8.4.8 ofthe TSD for the reasons DOE considers the Roll-up efficiency scenario mostprobable above Trial Standard Level 3 and the NAECA efficiency scenario most probable at Trial Standard Levels 1,2,and 3.) Primary energy savings would likely be 4.2 quads, which DOE considers significant. The estimated reduction in installed generating capacity is equivalent to avoiding the need for 53 large 400 megawatt powerplants, and reduced emissions would range up to 33 Mt of carbon equivalent and up to 85 kt ofNOx•12

At this standard level, the average purchaser ofa split system air conditioner, the predominate class with 65 percent ofall shipments, would see the installed price of$2236 rise to $2571, an increase of$335. Lowerutility billsfrom the energy savings would repay this increase in 11.3 years and produce a total saving with a net present value of$113 overthe 18.4 year life of the product. The average purchaser ofa single package air conditioner, which represents 10

12 Generating capacity, carbon, and NO.reductions based on NAECA efficiency scenario. 57 C.IWINDOWS"TEMP'.aircondilionenule.ald.wpd Jul)' 2.2001 (l1.14AM)

### EE.RM/STD-98-440- -cH - percent ofall shipments, would see the average installed price of$2607 rise to $3032, an increase of$425. Lower utility bills from the energy savings would repay this increase in 14.5 years and produce a total saving with a netpresent value of$29 over the 18.4 year life ofthe product.
The average purchaser ofa split system heat pump, which represents 22 percent ofall shipments, would see the average installed price of$3668 rise to $4000, an increase of$332. Lower utility bills from the energy savings would repay this increase in 6.4 years and produce a total saving with a net present value of$372 over the 18.4 year life ofthe product. The average purchaser of a single package heat pump, which represents 4 percent ofall shipments, would see the average installed price of$3599 rise to $4034, an increase of$435. Lower utility bills from the energy savings would repay this increase in 8.4 years and produce a total saving with a net present value of$353 over the 18.4 year life ofthe product. Trial Standard Level 4 would lower peak electricity demand compared to the base case. That would allow utility service areas to either avoid new capacity or,to the extent that peak loads contribute to reliability problems, improve system reliability. The increase in national netpresent value is expected to be $1billion.

Since DOE expects the Roll-up efficiency scenario to result from standards adopted at Trial Standard Level 4, the burdens ofTrial Standard Level 4 on manufacturers are likely to be
severe. Not only does DOE expect the average loss in industry NPV to be around 20 percent, but impacts on most manufacturers would reach almost 30 percent. Their long term drop in return on investment and short term drop in cash flow suggest that standards adopted at Trial Standard Level 4 could accelerate the consolidation trend, possibly resulting in fewer choices for consumers

-58 JUOC:\WINDOWS',TENP\aircondtionerrule atd wpd 58 Jul. 2,2001 (11 :14AM) EE-RM/STD-98-440

# --=IF**;<~3** 

# . percent ofall shipments, would see the average installed price of$2607 rise to $3032, an increase of$425. Lowerutility bills from the energy savings would repay this increase in 14.5 years and produce a total saving with a net present value of$29 over the 18.4 year life ofthe product.

The average purchaser ofa split system heat pump, which represents 22 percent of

### all shipments,would see the average installed price of$3668 rise to $4000, an increase of$332. Lower utility bills from the energy savings wouldrepay this increase in 6.4 years and produce a total saving with a net present value of$372 overthe 18.4 year life oftheproduct. The average purchaser ofa single package heat pump, which represents 4 percent ofall shipments, would see the average installed price of$3599 rise to $4034, an increase of$435. Lower utility bills from the energy savings would repay this increase in 8.4 years and produce a total saving with a net present value of$353 overthe]8.4 year life ofthe product. Trial Standard Level 4 would lower peak electricity demand compared to the base case. That would allow utility service areas to either avoid new capacity or, to the extentthat peak loads contribute to reliability problems, improve system reliability. The increase in national net present value is expected to be $] billion.

Since DOE expects the Roll-up efficiency scenario to result from standards adopted at Trial Standard Level 4, the burdens ofTrial Standard Level 4 on manufacturers are likely to be
severe. Notonly does DOE expectthe average loss in industry NPV to be around 20 percent, but impacts on most manufacturers would reach almost 30 percent. Their long term drop in return on investment and short term drop in cashflow suggestthat standards adopted at Trial Standard Level 4 could accelerate the consolidation trend, possibly resulting in fewer choices for consumers
58 C·\WINDOWS\TEr.1P'Iaircond,I,onerrule ald.wpd July 2. 2001 (1I14AM)

### EE-RM/STD-98-440 -- ' ~ and in a slowing ofthe pace ofinnovation well into the future. Furthermore, the cumulative impact on the industry ofall new Federal and State regulations would exceed $779 million. While the average consumer purchasing a 13 SEER air conditioner or heat pump would experience a net saving over the lifetime ofthe product, some households would experience net costs exceeding 2 percent ofthe total life-cycle cost oftoday's baseline units. Thus, 39 percent of the households with split system air conditioners, 52 percent with single package air conditioners, 6 percent with splitsystem heat pumps and 12percent with single package heat pumps would experience a net cost. The percentage oflow-income consumers who would experience net costs exceeding 2 percent ofthe total life-cycle cost oftoday'sbaseline units is greater than that ofthe average household. Thus, 50 percent oflow-income households with split system air conditioners, 61 percent with single package air conditioners, 12 percent with split system heat pumps and 20 percent with single package heat pumps would experience a net cost. Also, the possibility that consumers would incur substantial installation costs is great because 13 SEER equipment is not likely to fit in the same space as current 10 SEER equipment. In light ofthe higher purchase cost increase experienced by all consumers, the percentage ofhouseholds, in particular low-income households, which experience life-cycle cost increases, consumer burdens
are particularly acute under Trial Standard Level 4.

DOE proposes to conclude that at Trial Standard Level 4, the benefits ofenergy savings, generating capacity and emission avoidance, possible improvements in electric system reliability, and net benefit to the nation's consumers would be outweighed by the maldistribution of
consumer benefits, the potential increase in installation costs for some consumers related to 59-„jg~ ~C:\WINDOWS',TEMP.airconditionerrule atdwpd 59 Jul) 2,200(1 ( 14AM) EE-RM/STD-98-440

## -::tF-~~ 

# . and in a slowing ofthe pace ofinnovation well into the future. Furthennore,the cumulative impact on the industry ofall new Federal and State regulations would exceed $779 million. While the average consumerpurchasing a 13 SEERairconditionerorheat pump would experience a net saving overthe lifetime ofthe product, some households would experience net costsexceeding 2 percent ofthe totallife-cycIe cost oftoday'sbaseline units. Thus, 39percentof the households with split system airconditioners, 52percent with single package·air conditioners, 6 percent with 

### split system heatpumpsand 12percent with sjnglepackage heatpumps would experience a net cost. Thepercentage oflow-income consumers who would experience net costs exceeding 2 percent ofthe totallife-cyc1e cost oftoday'sbaseline 

### units is greater than that ofthe average household. Thus, 50 percent oflow-incomehouseholds with split system air conditioners, 61 percent with single package air conditioners, 12 percent with split system heat pumps and 20percent with single package heat pumps would experience a net cost. Also, the possibility that consumers would incur substantial installation costs is great because 13 SEER equipment is not likely to fit in the same space as current 10 SEER equipment. In light ofthe higherpurchase cost increase experienced by all consumers, the percentage ofhouseholds, in particular lo\v-income households, which experience life-cycle cost increases, consumer burdens
are particularly acute underTrial StandardLevel 4.

DOE proposes to concludethat at Trial Standard Level 4, the benefits ofenergy savings, generating capacity and emission avoidance, possible improvements in electric system reliability, and net benefit to the nation's consumers would be outweighedby the maldistribution of
consumer benefits, the potential increase in installation costs for some consumers related to
59 C:IWlNDOWS\TEMP\a,rcond,t,onerrule atd.wpd Jul) 2.2001 (II 14AM)

### EE-RM/STD-98-440 -- -c;'3 installing potentially larger equipment, and the cost to manufacturers taking into account the cumulative regulatory burden. In short, the large financial burdens ofTrial Standard Level 4 are not outweighed by the expected financial benefits. Other potential burdens include possible health effects caused indirectly by foregone air conditioning purchases and possible lessening of competition. Consequently, DOE proposes to determine thatTrial Standard Level 4 isnot economicallyjustified. Next, DOE considered Trial Standard Level 3. This level specifies 12 SEER equipment for air conditioners and 13 SEER equipment forheat pumps. In considering Trial Standard Level 3, DOE assumed theNAECA efficiency scenario and reverse engineering cost estimates to be the most probable. (See Section 8.4.8 ofthe TSD for the reasons DOE considers the Roll-up efficiency scenario mostprobable at Trial Standard Levels 4 and 5and the NAECA efficiency scenario most probable at Trial Standard Levels 1,2, and 3.) Primary energy savings would likely be 3.5 quads, which DOE considers significant. The estimated reduction in installed generating capacity is equivalent to avoiding the need for 37 large 400 megawatt power plants, and reduced emissions would range up to 28 Mt ofcarbon equivalent and up to 84 kt ofNO,.' 3 

### Atthis standard level, the average purchaser ofa split system air conditioner, the predominate class with 65 percent ofall shipments, would see the installed price of$2236 rise to $2449, an increase of$213. Lower utility bills from the energy savings would repay this increase in 9.8 years and produce atotal saving with a net present value of$113 overthe 18.4 year life of theproduct. The average purchaser ofa single package air conditioner, which represents 10 percent ofall shipments, would see the average installed price of$2607 rise to $2765, an increase

13Generating capacity, carbon, and NO, reductions based on NAECA efficiency scenario. C:\WINDOWS\TEMP\airconditionerule aidwpd 60 Jul. 2, 2001 (11 14AM) EE-RM/STD-98-440

### -#C;;{~3 

## . installingpotentially larger equipment, and the cost to manufacturers taking into account the cumulative regulatory burden. In short, the large financial burdens ofTrial Standard Level 4 are not outweighedby the expected financialbenefits. Otherpotential burdens include possible health effects caused indirectly by foregone airconditioningpurchases and possible lessening of competition. Consequently, DOEproposes to detenninethatTrial Standard Level 4 is not economicallyjustified. Next, DOEconsidered Trial Standard Level 3. This level specifies 12 SEER equipment for air conditioners and 13 SEER equipment for heatpumps. lnconsidering Trial Standard Level 3, DOE assumed the NAECA efficiency scenario and reverse engineering cost estimates to be the most probable. (See Section 8.4.8 ofthe TSD for the reasons DOE considers the Roll-up efficiency scenario most probable at Trial Standard Levels 4 and 5 and the NAECA efficiency scenario most probable at Trial Standard Levels 1,2, and 3.) Primary energy savings would likely be 3.5 quads, which DOE considers significant. The estimated reduction in installed generating capacity is equivalentto avoiding the need for 37 large 400 megawatt powerplants, and reduced emissions would range upto 28 Mt ofcarbon equivalent and up to 84 kt ofNOx•13 Atthis standard level, the average purchaser ofa split system air conditioner, the predominate class with 65 percent ofall shipments, would see the installed price of$2236 rise to $2449, an increase of$213. Lowerutility bills from the energy savings would repay this increase in 9.8 years and produce a total saving with a net presentvalue of$113 overthe 18.4 year life of the product. The average purchaser ofa single package air conditioner, whichrepresents 10 percent ofall shipments, would see the average installed price of$2607rise to $2765, an increase

13 Generating capacity, carbon, and NO. reductions based on NAECA efficiency scenario. 60 C:IWJNDOWSITEMP\aircondlllonenule ald
....pet July 2. 2001 (l1l4AM)EE-RM/STD-98-440 - .t23 . 

### of$158. Lower utility bills from the energy savings would repay this increase in 7.5 years and produce a total saving with a net present value of$163 over the 18.4 year life ofthe product. The average purchaser ofa split system heat pump, which represents 22 percent ofall shipments, would see the average installed price of$3668 rise to $4000, an increase of$332. Lower utility bills from the energy savings would repay this increase in 6.4 years and produce a total saving with a net present value of$372 overthe 18.4 year life ofthe product. The average purchaser ofa single package heat pump, which represents 4 percent ofall shipments, would see the average installed price of$3599 rise to $4034, an increase of$435. Lower utility bills from the energy savings would repay this increase in 8.4 years and produce a total saving with a net present value of$353 over the 18.4 year life ofthe product. Trial Standard Level 3 would lower peak electricity demand compared to the base case. That would allow utility service areas to either avoid new capacity or, to the extent that peak loads contribute to reliability problems, improve system reliability. The increase in national net present value is expected to be $1billion. Since DOE expects the NAECA efficiency scenario to result from standards adopted at Trial Standard Level 3, the burdens ofTrial Standard Level 3on manufacturers are likely to be less severe than at Trial Standard Level 4. DOE expects the average loss in industry NPV to be around 11 percent, but impacts on most manufacturers would be around 17 percent. Their long term drop in return on investment and short term drop in cash flow suggest that standards adopted at Trial Standard Level 3 could accelerate the consolidation trend, possibly resulting in fewer choices for consumers and in a slowing ofthe pace ofinnovation well into the future. Furthermore, the cumulative impact on the industry ofall new Federal and State regulations would exceed $678 million.

C: \WNDOWS\TEMP\airconditionerrule atd wpd 6 1 July 2,2001 (11 14AM) EE-RM/STD-98-440

# 4-**~~.** of$158. Lowerutility bills from the energy savings would repay this increase in 7.5 years and produce a total saving with a net present value 0[$163 over the 18.4 year life oftheproduct. The average purchaser ofa split system heat pump, which represents 22 percent ofall shipments, would see the average installed price of$3668 rise to $4000, an increase of$332. Lower utility bills from theenergy savings would repay this increase in 6.4 years and produce a total saving with 

### a net presentva1ue of$372 01'C'l

### the 18.4 year life ofthe product. The average purchaserofa singlepackage heat pump,which represents4 percentofall shipments, would see the average installed price of$3599 rise to $4034, an increase of$435. Lowerutility bills from the energy savings \vould repay this increase in 8.4 years and produce a total saving with a net present value of$353 overthe 18.4 year life ofthe product. Trial StandardLevel 3 would lower peak electricity demand compared to the base case. That would allowutility service areas to either avoid new capacity or, to the extent that peak loads contribute to reliability problems, improve system reliability. The increase in national net present value is expected tobe $1 billion. Since DOE expects the NAECA efficiency scenario to result from standards adopted at Trial Standard Level 3, the burdens ofTrial Standard Level 3 on manufacturers are likely to be less severe than at Trial Standard Level 4. DOE expects the average loss in industry NPV to be around 11 percent, but impacts on most manufacturerswould be around 17 percent. Their long term drop in return on investment and short term drop in cash flow suggest that standards adopted at Trial Standard Level 3 could acceleratethe cons01idation trend, possibly resulting in fewer choices for consumers and in a slowing ofthe pace ofinnovation well into the future. Furthennore,the cumulative impact onthe industry ofall new Federal and Stateregulations would exceed $678 million.
61 C:IWINDOWSITEMP\airconditioncrrulc atd.wpd July 2.2001 (II 14AM)

### EE-RM/STD-98-440--:G *~

- Trial Standard Level 3introduces the serious concern that prospective owners ofair conditioning heat pump systems would instead purchase less costly air conditioner resistance heater combinations because ofthelower standards for air conditioners compared toheat pumps atthis standard level. As discussed in the January 22 notice offinal rulemaking (66 FR 7196), the energy savings from the more efficient heat pumps would be eliminated ifonly a small fraction of heat pump owners (4 percent) switched toresistance heating. Trial Standard Level 3also poses a serious concern regarding potential anti-competitive effects in the heat pump market.

DOEproposes to conclude that, at Trial Standard Level 3,thebenefits ofenergy savings, generating capacity and emission avoidance, possible improvements in electric system reliability, and net benefit to the nation's consumers would be outweighed by the maldistribution of
consumer benefits and manufacturer costs, the likelihood ofhigher installation costs resulting from potentially larger equipment, and the net impact on the industry in light ofthe cumulative regulatory burden. Themost serious concern is the possibility ofequipment switching that would likely substantially reduce the calculated energy savings, drastically reducing the potential benefits. Other possible burdens include lessening ofcompetition and health effects caused by forgone air conditioner purchases. Consequently, DOE proposes to determine that Trial Standard Level 3is not economicallyjustified.
Next, DOE considered Trial Standard Level 2. This level specifies 12 SEER equipment for all product classes. In considering Trial Standard Level 2,DOE assumed the NAECA

C\WINDOWS\TEMPaircondiondinerrule.atdwpd 

### 62 July 2, 2001 (11:14AM) 

### EE-RM/STD-98-440-:1PM3 '.
Trial Standard Level 3 introduces the serious concern that prospective owners ofair conditioning heat pump systems would instead purchase less costly air conditionerresistance heater combinations because ofthe lowerstandards for air conditioners compared toheat pumps atthis standard level. As discussed in the January 22 notice offinal rulemaking (66 FR 7196), the energy savings from the more efficientheat pumps would be eliminated ifonly a small fraction of heat pump owners (4 percent)S\\itchedtoresistanceheating. Trial Standard Level 3 also poses a serious concern regardingpotential anti-competitive effects in the heat pumpmarket.

DOE proposes to conclude that, at Trial Standard Level 3, the benefits ofenergy savings, generating capacity and emission avoidance, possible improvements in electric system reliability, and net benefitto the nation's consumers would be outweighed by the maldistribution of
consumer benefits and manufacturer costs, the likelihood ofhigher installation costs resulting from potentially larger equipment, and the net impact on the industry in light ofthe cumulative regulatory burden. The most serious concern is the possibility ofequipment switching that would likely substantially reduce the calculated energy savings, drastically reducing the potential benefits. Otherpossible burdens include lessening ofcompetition and health effects caused by forgone air conditionerpurchases. Consequently, DOEproposes to determine that Trial Standard Level 3 is not economicallyjustified.
Next, DOE considered Trial Standard Level 2. This level specifies 12 SEERequipment for all product classes. In considering Trial Standard Level 2, DOE assumed the NAECA
62 C·IWlNDOWSITEMP\aircondilionenule.3Id.wpd July 2. 2001 (III4AM)

### EE-RM/STD-98-440, ? A:: . efficiency scenario and reverse engineering cost estimates to be the most probable. Primary energy savings would likely be 3 quads, which DOE considers significant. The estimated reduction in installed generating capacity is equivalent to avoiding the need for 27 large 400 megawatt power plants, and reduced emissions would range up to 24 Mt ofcarbon equivalent and up to 73 kt ofNO,. '4 

### At this standard level, the average purchaser ofa split system air conditioner, the predominate class with 65 percent ofall shipments, would see the installed price of$2236 rise to $2449, an increase of$213. Lower utility bills from the energy savings would repay this increase in 9.8 years and produce a total saving with a netpresent value of$113 over the 18.4 year life of theproduct. The average purchaser ofa single package air conditioner, which represents 10 percent ofall shipments, would see the average installed price of$2607 rise to $2765, an increase of$158. Lower utility bills from the energy savings would repay this increase in 7.5 years and produce a total saving with a net present value of$163 over the 18.4 year life ofthe product. The average purchaser ofa split system heat pump, which represents 22 percent ofall shipments, would see the average installed price of$3668 rise to $3812, an increase of$144. Lower utility bills from the energy savings would repay this increase in 3.9 years and produce a total saving with a net present value of$365 over the 18.4 year life ofthe product. The average purchaser ofa single package heat pump, which represents 4 percent ofall shipments, would see the average installed price of$3599 rise to $3748, an increase of$149. Lower utility bills from the energy savings would repay this increase in 4 years and produce a total saving with a net present value of$421 over the 18.4 year life oftheproduct. Trial Standard Level 2 would lower

14Generating capacity, carbon, and NO, reductions based on NAECA efficiency scenario. C:\WINDOWS\TEhMPlairconditionerrumle ad wpd 63 July 2,2001 (11 14AM) EE-RM/STD-98-440_.1F'

### ~~ • efficiency scenario and reverse engineering cost estimates to be the most probable. Primary energy savings would likely be 3 quads, which DOE considers significant. The estimated reduction in installed generating capacity is equivalent to avoiding the need for 27 large 400 megawatt powerplants, and reduced emissions would range up to 24 Mt ofcarbon equivalent and up to 73 kt ofNOli' 14 At this standard level, the average purchaser ofa split systemair conditioner, the predominate class with 65 percent ofall shipments, would see the installed price of$2236 rise to $2449, an increase of$213. Lowerutility bms from the energy savings would repay this increase in 9.8 years and produce a total saving with a net present value of$1]3 overthe 18.4 year life of theproduct. The average purchaser ofa single package air conditioner, which represents 10 percent ofall shipments, would see the average installed price of$2607 rise to $2765, an increase of$158. Lower utility bills from the energy savings would repay this increase in 7.5 years and produce a total saving with a net present value of$163 over the 18.4 year life oftheproduct. The average purchaser ofa split system heat pump, which represents 22 percent ofall shipments, would see the average installed price of$3668 rise to $3812, an increase of$144. Lower utility bills from the energy savings would repay this increase in 3.9 years and produce a total saving with a net present value of$365 overthe 18.4 year life ofthe product. The average purchaser ofa single package heat pump, whichrepresents4 percent ofall shipments, would see the average installed price of$3599rise to $3748, an increase of$149. Lower utility bills from the energy savings would repay this increase in4 years and produce atotal saving with a net present value of$421 over the 18.4 yearlife ofthe product. Trial Standard Level 2 would lower

14 Generating capacity, carbon, and NO, reductions based on NAECA efficiency scenario. 63 C:\WINDOWS\ TEMPlalfconditionclTUle.atd wpd July 2. 2001 (II 14AM)

### EE-RM/STD-98-440 

### -i 

## c;?e-3 peak electricity demand compared to the base case. That would allow utility service areas to either avoid new capacity or, to the extent that peak loads contribute to reliability problems, improve system reliability. The increase in national net present value is.expected to be $2 billion.

Since DOE expects the NAECA efficiency scenario to result from standards adopted at Trial Standard Level 2, the burdens ofTrial Standard Level 2 on manufacturers are likely to be moderate. DOE expects the average loss in industry NPV to be around 10 percent, with impacts
on most manufacturers around 16 percent. Their long term drop in retum on investment and short term drop in cash flow are moderate, suggesting that standards adopted at Trial Standard Level 2 would not accelerate the consolidation trend, and could result in more choices for consumers and raise the pace ofinnovation. The cumulative impact on the industry ofall new Federal and State regulations would exceed $658 million.
\hilethe average consumer purchasing a 12 SEER air conditioner or heat pump would experience a net saving over the lifetime ofthe product, some households would experience net costs exceeding 2 percent ofthe total life-cycle cost oftoday's baseline units. Thus, 25 percent of the households with split system air conditioners and 9percent with single package air conditioners would experience a net cost. No households with heat pumps would experience a net cost. The percentage oflow-income consumers who would experience net costs exceeding 2 percent ofthe total life-cycle cost oftoday's baseline units is greater than that for an average household. Thus, 34 percent oflow-income households with split system air conditioners and 14 percent with single package air conditioners would experience a net cost. No low-income

C:\WINDOWS\TEMP\airconditionrrulc aid wpd 64 July 2,2001 (11 14AM) EE-RM/STD-98-440

# -it

# eX cR 3. peak electricity demand compared to the base case. That would allow utility service areas to either avoid new capacity or, to the extent that peak loads contribute to reliability problems, improve system reliability. The increase in national netpresent value iS,expected to be $2 billion.

Since DOE expects the NAECA efficiency scenarioto result from standards adopted at Trial StandardLevel 2, the burdens ofTrial Standard Level 2 on manufacturers are likely to be moderate. DOE expects the average loss in industry NPVlobe around 10 percent, with impacts
on most manufacturers around 16 percent. Theirlong term drop in relUrn on investment and short tenn drop incash flow are moderate, suggestingthat standards adopted at Trial Standard Level 2 would not accelerate the consolidatjontrend, and cou1d result in more choicesfor consumers and raise the pace ofinnovation. The cumulative impact on the industry ofall newFederal and State regulations would exceed $658 million.

While the average consumer purchasing a ]2 SEER air conditioner orheat pump would experience a net saving over the lifetime ofthe product, some households would experience net costs exceeding 2 percent ofthe total life-cycle cost oftoday'sbaseline units. Thus, 25 percent of the households with split system air conditioners and 9 percent with single package air conditioners would experience a net cost. Nohouseholds with heatpumps would experience a net cost. The percentage oflow-income consumers who would experiencenet costs exceeding 2 percent ofthe total life-cycle cost oftoday's baseline units is greaterthan that for an average household. Thus, 34 percent oflow-income households with split system air conditioners and ] 4 percent with single package air conditioners would experience a net cost. No low-income 

### 64 C:IWINDOWSITEMPlairconduionerruk,ald wpd Jul)' 2, 2001 (II 14AM)EE-RM/STD-98-440--- 5 O ,3 

### households with heat pumps would experience a net cost. Also, the possibility that consumers would incur substantial installation costs is less than that with a 13 SEER standard because 12 SEER equipment is more likely to fit in the same space as current 10 SEER equipment. In light of the moderate purchase cost increase experienced by all consumers, the percentage ofhouseholds, in particular low-income households, which experience life-cycle cost increases, consumer burdens are less severe under Trial Standard Level 2.

After carefully reconsidering the analyses and comments, and adjusting the weight given to consumer impacts and cumulative regulatory burden in the assessment ofthe benefits and burdens, DOE is proposing to amend the energy conservation standards for central air conditioners and central air conditioning heat pumps at Trial Standard Level 2. DOE proposes to conclude this standard saves a significant amount ofenergy and is technologically feasible and economically justified. In determining economic justification, DOE proposes to conclude that the benefits ofenergy savings, the projected amount ofavoided power plant capacity or improvement in system reliability that accompanies expected reduction in peak demand, consumer life-cycle cost savings, national net present value increase, and emission reductions resulting from the standards outweigh the burdens. The burdens include the loss ofmanufacturer net present value, taking into account the cumulative regulatory burden and annual cash flow, increases in life-cycle cost for some users ofproducts covered by today's proposed rule, any possible increase in health problems caused by consumers foregoing air conditioner purchases, any possible reduction in the ability ofthe product to dehumidify, any possible lessening ofcompetition, and any possible difficulty in installing the new baseline products into replacement applications.

C:\WINDOWS\TEMP\a>rconditionerrule.ad wpd 

### 65 July 2, 2001 (I1 14AM) EE-RM/STD-98-440

# -::IJ=:**~**

# c:::2.3
. households with heat pumps would experience a net cost. Also, the possibility that consumers would incur substantial installation costs is less than that with a 13 SEERstandard because 12 SEER equipment is more likely to fit in the same space as current 10SEERequipment. In light of the moderatepurchase cost increase experienced by all consumers, the percentage ofhouseholds, inparticularlow-income households, which experience life-cycle cost increases, consumer burdens are less severe under Trial Standard Level 2.

After carefully reconsideringthe analyses and comments, and adjustingthe weight given to consumer impacts and cumulative regulatory burden in the assessment ofthe benefits and burdens, DOE is proposing to amend the energy conservation standards for central air conditioners and central air conditioning heat pumps at Trial Standard Level 2. DOEproposesto conclude this standard saves a significant amount ofenergy and is technologically feasible and economicallyjustified. In determining economicjustification, DOE proposesto conclude that the benefits ofenergy savings,the projected amount ofavoided powerplant capacity or improvement in system reliability that accompanies expected reduction in peak demand, consumer life-cycle cost savings, national net present value increase, and emission reductions resulting from the standards outweigh the burdens. The burdens include the loss ofmanufacturernet presentvalue, taking into account the cumulativeregulatory burden and annual cash flow, increases in life-cycle cost for some users ofproducts covered by today'sproposed rule, any possible increase in health problems caused by consumers foregoing air conditionerpurchases, any possible reduction in the ability ofthe productto dehumidify, any possible lessening ofcompetition, and any possible difficulty in installing the new baseline products into replacement applications.
65 C:IWINDOWSlTEMP'\airconditionerrule.atd wpd July 2, 2001 (II 14AM)

### EE-RM/STD-98-440 -'f ^^3. 

### D. Conclusions Regarding Space-Constrained Products Ifa 12 SEER minimum requirement for air conditioners and heatpumps is implemented,
as proposed, DOE's analysis suggests that ofall potential space-constrained products, only those with through-the-wall condensers need special consideration. The TSD contains a new appendix (Appendix L) describing theresults ofour recent re-evaluation ofthose products. The results of that analysis are summarized in Section V.A.2 above. They demonstrate that splitTTW equipment can attain 11 SEER using designs and technologies that are commonly applied or available, withprice impacts similar tothose that conventional equipment would experience in meeting the proposed 12 SEER standard. The packaged equipment analyzed was demonstrated to be capable ofattaining only a 10.6 SEER rating, although one manufacturer ofpackaged TTW equipment, Armstrong, expects their equipment to be capable ofattaining 11 SEER. Based on this evaluation, DOE isproposing to establish new product classes for products that have through-the-wall condensers and are intended forreplacement applications. The new classes would be required to meet minimum efficiencies lower than those ofthe other classes: 11 SEER and 7.1 HSPF for through-the-wall air conditioner and heat pump split-systems, and 10.6 SEER and 7.0 HSPF for through-the-wall air conditioner single-package systems. DOE's analysis suggests those products can attain these levels without substantial redesign or cost increases that would result in a loss ofmarket share to conventional products.

The new through-the-wall classes would consist only ofproducts manufactured before IINSERT DATE 9YEARS AFTER DATE OF PUBLICATION IN THE FEDERAL REGISTER]. See proposed definition of"through-the-wall air conditioner and heat pump."

N:\airconditionerule.atd.wpd 66 July2,2001 (11:40AM) EE-RM/STD-98-440
.....

# c;r-o{cR 3

. D. Conclusions Regarding Space-Constrained Products Ifa 12 SEER minimum requirement for air conditioners and heatpumps is implemented,
as proposed, DOE's analysis suggests that ofall potential space-constrainedproducts, only those with through-the-wall condensers need special consideration. The TSD contains a new appendix (Appendix L) describing the results ofourrecent re-evaluation ofthose products. The results of that analysis are summarized in SectionV.A.2 above. They demonstratethat splitTTW equipment can attain 11 SEERusing designs and technologies that are commonly applied or available, with price impacts similarto those that conventional equipmentwould experience 

### in meeting the proposed 12 SEER standard. The packaged equipment analyzedwas demonstrated to be capable ofattaining only a 10.6 SEERrating, although onemanufacturer ofpackagedTTW equipment, Armstrong, expects their equipment to be capable ofattaining 11 SEER. Based on this evaluation, DOE is proposing to establish newproduct classes for products that have through-the-wall condensers and are intended for replacement applications. The new classes would be required to meet minimum·efficiencies lowerthan those ofthe otherclasses: 11 SEER and 7.1 HSPF for**through-the~wall** air conditioner and heat pump split-systems, and 10.6 SEER and 7.0 HSPF for through-the-wall air conditioner single-package systems. DOE's analysis suggests those products can attain these levels without substantial redesign or cost increases that would result in a loss ofmarket share to conventional products.

The new through-the-wall classes would consist only ofproducts manufactured before lINSERT DATE 9 YEARS AFTERDATE OF PUBLICATION IN THEFEDERAL REGISTER]. See proposed definition of"through-the-wall air conditioner and heatpump."

66 N:lairconditionelTUle.atd.wpd July 2, 200I (II:40AM)

### EE-RM/STD-98-440 -- , , Thus, the classes would exist only for a period offour years following the establishment ofthe
new standards. During that time, the availability ofsuitable high-efficiency components will likely increase and the manufacturers ofthrough-the-wall products would be able to investigate options for meeting the more stringent 12 SEER level. Both will make it easier for through-thewall products to attain the 12 SEER minimum efficiency required ofother products. The sunset provision will help to ensure that other manufacturers will not make the investment required to market through-the-wall products heavily for conventional applications during the four year period. It will also limit the time during which lower efficiency 1I SEER equipment is installed, ensuring that additional energy savings associated with the 12 SEER level are realized in a certain time period.

To further limit the application ofthe through-the-wall class, products in these classes may not exceed 30,000 BTU/hr in cooling capacity, may not contain special weatherization features that would allow them to be installed totally outdoors, and must be marked for installation only through an exterior wall. DOE also proposes limiting the size ofthe area used for condenser air exchange to attempt to limit these classes to those products intended primarily for replacement applications.

No other new product classes are proposed since all other products types ofwhich we are
aware have demonstrated the ability to compete in the market at the 12 SEER level.

C ,

WINDOWS\TENMPairconditionerule.atd wpd 

### 67 July 2. 2001 (1 :14AM) EE-RM/STD-98-440-::It' 

# cR.:2.3 { Thus, the classes would exist only for a period offour years foHowing the establishment ofthe
new standards. Duringthattime, the availability ofsuitable high-efficiency components wi1l likely increase and the manufacturers ofthrough-the-waU products would be able to investigate options for meeting the more stringent 12 SEER level. BothwiJ] make it easierforthrough-thewall products to attainthe 12 SEERminimum efficiency required ofotherproducts. The sunset provision will help to ensure that other manufacturerswill not make the investmentrequired to market through-the-wall productsheavily for conventional applications during the four year period. Itwill also limitthe time during which lower efficiency ] 1SEERequipmentis instaUed, ensuringthat additional energy savings associated withthe 12 SEER level are realized in a certain time period.

To further limit the application ofthe through-the-wall class, products in these classes may not exceed 30,000 BTUIhr in cooling capacity, may not contain special weatherization features that would allow them to be installed totally outdoors, and must be marked for installation only through an exteriorwall. DOE also proposes limiting the size ofthe area used for condenser air exchange to attempt to limit these classes to thoseproducts intended primarily for replacement applications.

No other new product classes are proposed since aU otherproducts types ofwhich we are
aware have demonstrated the ability to compete inthe market at the 12 SEER level.



### 67 C 'WINOOWSITEMPlairconditionerrulc.atd wpd July 2. 2001 (1I14AM)

### EE-RM/STD-98-440 - :$4 5
VI. Procedural Issues and Regulatory Review A. Review Under the National Environmental Policy Act DOE prepared an Environmental Assessment (EA) (DOE/EA-1352) available from: U.S. Department ofEnergy, Office ofEnergy Efficiency and Renewable Energy, Forrestal Building, Mail Station EE-41, 1000 Independence Avenue, SW, Washington, DC 20585-0121, (202) 586- 0854. DOE found the environmental effects associated with various standard efficiency levels for central air conditioners and heat pumps to be not significant, and therefore DOE is publishing, elsewhere in this issue ofthe Federal Register, A Finding ofNo Significant Impact (FONSI) pursuant to the National Environmental Policy Act of 1969 (NEPA), 42 U.S.C. 4321 et seq., the regulations ofthe Council ofEnvironmental Quality (40 CFR Parts 1500-1508), and DOE's regulations forcompliance with NEPA (10 CFR Part 1021).

B. Review Under Executive Order 12866 Today's regulatory action has been determined to be an "economically significant regulatory action" under Executive Order 12866, "Regulatory Planning and Review." 58 FR 51735 (October 4, 1993). Accordingly, today's action was subject to review under the Executive Order by the Office ofInformation and Regulatory Affairs (OIRA) ofthe Office ofManagement and Budget.

The draft submitted to OIRA and other documents submitted to OIRA for review have

C:\WlNDOWS\TEMP\airconditionrrle aid wpd 68 July 2, 2001 (11:14AM) EE-RM/STD-98-440

# -::/t-~:<**~**

# .
VI. Procedural Issues and Regulatory Review A. Review Underthe National Environmental Policy Act DOEprepared an Environmental Assessment (EA) (DOEfEA-1352) available from: U.S. Department ofEnergy, Office ofEnergy Efficiency and Renewable Energy, Forrestal Building, Mail Station EE-41 , 1000lndependence Avenue, SW, Washington, DC 20585-0121, (202) 586- 0854. DOE found the environmental effects associated withvarious standard efficiency levels for central air conditioners and heat pumps to be not significant, and therefore DOE is publishing, elsewhere in this issue ofthe Federal Register, A Finding ofNo Significant Impact (FONSI) pursuant to the National Environmental Policy Act of 1969 (NEPA), 42 U.S.C. 4321 et seq., the regulations ofthe Council ofEnvironmental Quality (40 CFRParts 1500-1508), and DOE's regulations for compliance with NEPA (10 CFRPart 1021).

B. Review Under Executive Order 12866 Today's regulatory action has been determined to be an "economically significant regulatory action" under Executive Order 12866, "Regulatory Planning and Review." 58 FR 51735 (October4, 1993). Accordingly, today's action was subject to review under the Executive Order by the Office ofInformation and Regulatory Affairs (OIRA) ofthe Office ofManagement and Budget.

The draft submitted to OIRA and other documents submitted to OIRA for review have
68 C.IWINDOWSITEMPlairconditionclT\Ilc.atd wpd July 2. 2001 (1I14AM)

### EE-RM/STD-98-440-- - ,,3 been made a part ofthe rulemaking record and are available forpublic review in DOE's Freedom ofInformation Reading Room, 1000 Independence Avenue, SW, Washington, DC 20585, between thehours of9:00 a.m. and 4:00 p.m., Monday through Friday, telephone (202) 586-3142.

The October 5, 2000, NOPR contained a summary ofthe Regulatory Analysis which focused on the major alternatives consideredin arriving atthe approach to improving the energy efficiency ofconsumer products. 65 FR 59627-29. The alternatives considered in DOE's analysis
are consumer product labeling, consumer education, prescriptive standards, consumer tax credits,
consumer rebates, manufacturer tax credits, voluntary efficiency targets, low income subsidy, mass government purchases, and performance standards. The reader is referred to the complete draft "Regulatory Impact Analysis," which is contained in the TSD, available as indicated at the beginning ofthis notice or from the contact person named at the beginning ofthis notice. The TSD provides: (1) a statement ofthe problem addressed by this regulation, and the mandate for government action; (2) a description and analysis ofthe feasible policy alternatives to this regulation; (3) a quantitative comparison ofthe impacts ofthe alternatives; and (4) the national economic impacts ofthe proposed standard.

C. Review under the Regulatory Flexibility Act The Regulatory Flexibility Act, 5 U.S.C. 601 et seq., requires that a Federal agency prepare a regulatory flexibility analysis for any rule forwhich the agency is required to publish a general notice ofproposed rulemaking. Such an assessment ofthe impact ofregulations on small

,„~~69 CWC:\WINDOWS\TEMP'airconditionerrulc.atdwpd 69 July 2, 2001 (I1:14AM) 

### EE-RM/STO-9S-440-#

### ~**~**

## 3. been made a part ofthe rulemaking record and are available for public review in DOE'sFreedom ofInformation Reading Room, 1000 Independence Avenue, SW, Washington, DC 20585, between the hours of9:00a.m. and 4:00 p.m., Monday through Friday, telephone (202) 586-3142.

The October 5, 2000, NOPR contained a summary ofthe Regulatory Analysis which focused on the major alternatives considered in arriving at the approach to improving the energy efficiency ofconsumer products. 65 FR 59627-29. Thealternativesconsidered in DOE'sanalysis
are consumer product labeling, consumereducation, prescriptive standards,consumertaxcredits,
consumerrebates, manufacturertax credits, voluntary efficiency targets, low income subsidy,
mass governmentpurchases, and performance standards. The reader is referred to the complete draft "Regulatory Impact Analysis," which is contained in the TSD, available as indicated at the beginning ofthis notice orfrom the contact person named at the beginning ofthis notice. The TSDprovides: (l) a statement ofthe problem addressed by this regulation, and the mandate for government action; (2) a description and analysis ofthe feasible policy alternativestothis regulation; (3) a quantitative comparison ofthe impacts ofthe alternatives; and (4) the national economic impacts ofthe proposed standard.

C. Review underthe Regulatory Flexibility Act The Regulatory Flexibility Act,S U.S.c. 601**et~.,** requires that a Federal agency prepare aregulatory flexibility analysis for any rule for which the agency is required to publish a general notice ofproposed rulemaking. Such an assessment ofthe impact ofregulations on small
69 C:IWIJI.'DOWSITEMP\aircondilionerrule.ald.wpd July 2, 2001 (1I14AM)

### EE-RM/STD-98-440 -A:d . businesses is not required ifthe agency certifies that the rule would not, ifpromulgated, have a significant economic impact on a substantial number ofsmall entities (5 U.S.C. 605(b)). To be categorized as a "small" airconditioning and warm airheating equipment manufacturer, a firm must employ no more than 750 employees.

In the October 5, 2000 NOPR, DOE discussed the potential impacts on small businesses of the October 5proposed rule (corresponding to Trial Standard Level 3), and certified that the proposed standard levels would not have a significant economic impact on a substantial number ofsmall entities. 65 FR 59629-30. DOE reported that nearly all small businesses engaged in the manufacture ofcentral air conditioners and heat pumps produce products that DOE has called "niche" products. To avoid adversely impacting manufacturers ofniche products, DOE proposed
a separate product class for through-the-wall equipment, much ofwhich is manufactured by small manufacturers. See 65 FR 59609-11. Inthe preamble to the January 22 final rule, DOE addressed comments regarding the impacts more stringent standards might have on the availability ofniche products, and although the final rule adopted the higher Trial Standard Level 4 standards, DOE deferred setting an amended standard for niche products. 66 FR 7175, 7196-97. Because the final rule excluded most products made by small manufacturers, DOE affirmed its certification.
Today DOE is proposing energy conservation standards for central air conditioners and heat pumps that correspond to Trial Standard Level 2. Because ofsevere size constraints, DOE is again proposing a separate product class for through-the-wall equipment, with a lower SEER. No other provisions for niche products are being proposed.

_,70 C.WC:'WINDOWS\TEMPairconditionerrule atd pd 70 July 2. 2001 (11:14AM) EE-RM/STD-98-440

# -iF-t5l..Of.3
. businesses is not required ifthe agency certifies that the rule would not, ifpromulgated, have a . significant economic impact on a substantial number ofsmall entities (5 U.S.C. 605(b». Tobe categorized as a "small"airconditioning and warm air heating equipment manufacturer, a firm must employ no morethan750 employees.

In the October 5,2000NOPR, DOE discussed the potential impacts on small businesses of the October5 proposed rule (correspondingto Trial Standard Level 3), and certified thatthe proposed standard levels 

### would not have a significanteconomic impact on a substantial number ofsmall entities. 65 FR 59629-30. DOE reported that nearly 

### atl small businesses engaged in the manufacture ofcentral air conditioners and heat pumpsproduceproducts that DOE has called '''niche'' products. To avoid adversely impacting manufacturers ofniche products, DOEproposed
a separate product class for through-the-wall equipment, much ofwhich is manufactured by small manufacturers. See 65 FR 59609-11. In the preamble to the January 22 final rule, DOE addressed comments regarding the impacts more stringent standards might have on the availability ofniche products, and although the final rule adopted the higherTrial Standard Level 4 standards, DOE deferred setting an amended standard for niche products. 66 FR 7175, 7196-97. Becausethe final rule excluded mostproducts made by small manufacturers, DOE affirmed its certification.
Today DOE is proposing energy conservation standards for central air conditioners and heat pumpsthat correspondto Trial Standard Level 2. Because ofsevere size constraints, DOE is again proposing a separateproduct class for through-the-wall equipment, with a lower SEER. No other provisions for niche products are being proposed.
70 C'.WINDOWS,TEMP\aircondilionenule aId wpd July 2. 200I (II.14AM)

### EE-RM/STD-98-440- ;c^; 

## 3
. DOE certifies, based on its analysis and public comments, that today's proposed rule would not have a significant impact on a substantial number of small entities. Accordingly, DOE has not prepared a regulatory flexibility analysis. This certification is based on an assessment of the impact the proposed standards would have on small entities that would be directly affected by theirimplementation, which is all the Regulatory Flexibility Act requires. The assertion by ARI, in its petition for consideration, that DOE is required to assess the indirect effects ofproposed standards is contrary to established case law interpreting the Act.

D. Review Under the Paperwork Reduction Act No new information or record keeping requirements are imposed by this rulemaking. Accordingly, no Office ofManagement and Budget clearance is required under the Paperwork Reduction Act. 44 U.S.C. 3501 et seq.

E. Review Under Executive Order 12988 With respect tothe review ofexisting regulations and the promulgation ofnew regulations, Section 3(a) ofExecutive Order 12988, "Civil Justice Reform," 61 FR 4729 (February 7, 1996), imposes on Executive agencies the general duty to adhere to the following requirements: (1) eliminate drafting errors and ambiguity; (2) write regulations to minimize litigation; and (3) provide a clear legal standard for affected conduct rather than ageneral standard and promote simplification and burden reduction. With regard to the review required by section 3(a), section 3(b) ofExecutive Order 12988 specifically requires that Executive agencies make every reasonable effort to ensure that the regulation: (1) clearly specifies the preemptive effect, if

C '

WINDOWS\TEMP\airconditionerrule atd wpd 71 July 2,2001 (11:14AM)

EE-RM/STD-98-440_

## #-~ 

# . DOE certifies, based on its analysis and public comments, that today'sproposed rule would not have a significant impact on a substantial number ofsmall entities. Accordingly, DOE has not prepared a regulatory flexibility analysis. This certification is.based on an assessment of the impact the proposed standards would have on small entities that would be directly affectedby thehimplementation, which'is all the Regulatory Flexibility Act requires. The assertionby ARl, in its petition for consideration, thatDOE is required to assessthe indirect effectsofproposed standards is contrary to established case law interpreting the Act.

D. Review Underthe Paperwork Reduction Act No new information orrecord keeping requirements are imposed by this rulemaking. Accordingly, no Office ofManagement and Budget clearance is required under the Paperwork Reduction Act. 44 U.S.c. 3501 et seq.

E. Review Under Executive Order 12988 With respect to the review ofexisting regulations and the promulgation ofnew regulations, Section 3(a) ofExecutive Order 12988, "Civil Justice Reform," 61 FR4729 (February 7, 1996), imposes on Executive agenciesthe general duty to adhere to the following requirements: (I) eliminate drafting errors and ambiguity; (2) write regulations to minimize litigation; and (3) provide a clear legal standard for affected conduct rather than a general standard and promote simplification and burdenreduction. With regard to the review required by section 3(a), section 3(b) ofExecutive Order 12988 specifically requires that Executive agencies make every reasonable effort to ensure that the regulation: (l) clearly specifies the preemptive effect, if
71 C ·WINDOWSITEMP\airconditionerrule.atd.wpd July 2, 2001 (I L14AM)

### EE-RM/STD-98-440--'4 o ;c? 3 

### any; (2) clearly specifies any effect on existing Federal law or regulation; (3) provides a clear legal standard for affected conduct while promoting simplification and burden reduction; (4) specifies the retroactive effect, ifany; (5) adequately defines key terms; and (6) addresses other important issues affecting clarity and general draftsmanship under any guidelines issued by the Attorney General. Section 3(c) ofExecutive Order 12988 requires Executive agencies to review regulations in light ofapplicable standards in section 3(a) and section 3(b) to determine whether they are met or it is unreasonable to meet one or more ofthem. DOE reviewed today's proposed rule under the standards ofsection 3 ofthe Executive Order and determined that, to the extent permitted by law, this proposed rule meets the relevant standards.

F. Review Under Executive Order 12630 DOE has determined pursuant to Executive Order 12630, "Governmental Actions and Interference with Constitutionally Protected Property Rights," 52 FR 8859 (March 18, 1988), that thisproposed regulation would not result in any takings that might require compensation under the Fifth Amendment to the United States Constitution.

G. Review under Executive Order 13132 Executive Order 13132, "Federalism," 64 FR 43255 (August 4, 1999) imposes certain requirements on agencies formulating and implementing policies or regulations that preempt State law or that have federalism implications. Agencies are required to examine the constitutional and statutory authority supporting any action that would limit the policymaking discretion ofthe States and carefully assess the necessity for such actions. Agencies also must have an accountable

C\WINDOWS\TElP\airconditionerrle.atd wpd 72 July 2.2001 (11:14AM)

### EE.RM/STD.98-440~~~3 . any; (2) clearly specifies any effect onexisting Federal laworregulation; (3) provides a clear legal standard for affected conduct while promoting simplification and burden reduction; (4) specifies the retroactive effect, ifany; (5) adequately defineskey terms; and (6) addresses otherimportant issues affecting cIarityand general draftsmanship under any guidelines issued by the Attorney General. Section 3(c) ofExecutive Order 12988 requiresExecutive agenciesto review regulations in light ofapplicable standards in section 3(a) and section 3(b)to determine whether they are met or it isunreasonable tomeet oneor moreofthem. DOEreviewed today's proposed rule under the standards ofsection 3 ofthe Executive Order and detennined that, to the extent permitted by law, this proposedrule meets the relevant standards.

F. Review Under Executive Order 12630 DOE has determined pursuant to Executive Order 12630, "Governrnental Actions and Interference with Constitutionally Protected Property Rights," 52 FR 8859 (March 18, 1988),that this proposed regulation would not result in any takings that mightrequire compensation under the Fifth Amendment to the United States Constitution.

G. Review under Executive Order 13132 Executive Order 13132, "Federalism," 64 FR43255 (August 4, 1999) imposes certain requirements on agencies formulating and implementing policies orregulations that preempt State law orthat have federalism implications. Agencies are required to examine the constitutional and statutory authority supporting any action that would limit the policymaking discretion ofthe States and carefully assess the necessity for such actions. Agencies also must have an accountable
72 C.IWINDQWS\TEMPlaircondilionerrule.ald.wpd Jul)" 2.2001 (II: 14AM)

### EE-RM/STD-98-440 

### -" ' .3
process to ensure meaningful and timely input by State and local officials in the development of regulatory policies that have federalism implications. DOE published its intergovernmental consultation policy on March 14, 2000. 65 FR 13735. DOE has examined today's proposed rule and has determined that it would not have a substantial direct effect on the States, on the relationship between the national government and the States, or on the distribution ofpower and responsibilities among the various levels ofgovernment. State regulations that may have existed
on the products that are the subject oftoday's proposed rule were preempted by the Federal standards established in NAECA. States can petition DOE for exemption from such preemption to the extent, and based on criteria, set forth in EPCA.

H. Review Under the Unfunded Mandates Reform Act of 1995 With respect to a proposed regulatory action that may result in the expenditure by State, local and tribal governments, in the aggregate, or by the private sector of$100 million or more, section 202 ofthe Unfunded Mandates Reform Act of 1995 (UMRA) requires a Federal agency to publish estimates ofthe resulting costs, benefits and other effects on the national economy. 2 U.S.C. 1532(a), (b). UMRA also requires each Federal agency to develop an effective process to permit timely input by state, local, and tribal governments on a proposed significant intergovernmental mandate. DOE's consultation process is described in a notice published in the Federal Register on March 18, 1997. 62 FR 12820. Today's proposed rule may impose expenditures of$100 million or more on the private sector. It does not contain a Federal intergovernmental mandate.

C:\WINDOWS\TEMPairconditionerrule.aldwpd 

### 73 July.2, 2001 (11:14AM) EE-RM/STO-98-440

# --***~;<3** 

# . processto ensure meaningful and timely input by State and local officials in the development of regulatory policies thathave federalism implications. DOE published its intergovernmental consultationpolicy on March 14,2000. 65 FR 13735. DOEhas examined today'sproposed rule and hasdetermined that it would not have a substantial direct effect on the States, on the relationship betweenthe nationaJ government and the States, oron the distribution ofpower and responsibilities among the various levels ofgovernment. Stateregulations that may have existed
onthe productsthat are the subjectoftoday's proposed rule werepreempted by the Federal standards established in NAECA. States can petition DOE for exemption from such preemption tothe extent, and based on criteria, set forth in EPCA.

H. Review Underthe Unfunded Mandates Reform Act of 1995 With respect to a proposed regulatory action that may result in the expenditure by State, local and tribal governments, in the aggregate, or by the private sector of$}00 million or more, section 202 ofthe Unfunded Mandates Reform Act of 1995 (UMRA) requires a Federal agency to publish estimates ofthe resulting costs, benefits and other effects on the national economy. 2 U.S.c. 1532(a), (b). UMRA also requires each Federal agency to develop an effective process to permittimely input by state, local, and tribal governments on a proposed significant intergovernmental mandate. DOE's consultation process is described in a notice published in the Federal Register on March 18, 1997. 62 FR 12820. Today'sproposed rule may impose expenditures of$100million ormore on the private sector. Itdoes not contain a Federal intergovernmental mandate.

73 C·IWINDOWSITEMP\airconditionenule.atd.wpd Jul)' 2, 2001 (11I4AM)

### EE-RM/STD-98-440- $ 

### '? Section 202 ofUMRA authorizes an agency to respond to the content requirements of UMRA in any other statement or analysis that accompanies the proposed rule. 2 U.S.C. 1532(c). The content requirements ofsection 202(b) ofUMRA relevant to a private sector mandate substantially overlap the economic analysis requirements that apply under section 325(o) ofEPCA and Executive Order 12866. The SUPPLEMENTARY INFORMATION section ofthe January 22, 2001, notice offinal rulemaking and "Regulatory Impact Analysis" section ofthe TSD forthis proposed rule responds to those requirements.

Under section 205 ofUMRA, DOE is obligated to identify and consider a reasonable number ofregulatory alternatives before promulgating a rule for which a written statement under section 202 is required. DOE isrequired to select from those alternatives the most cost-effective and least burdensome alternative that achieves the objectives ofthe rule unless DOE publishes an explanation for doing otherwise or the selection of such an alternative is inconsistent with law. As required by section 325(o) ofthe Energy Policy and Conservation Act (42 U.S.C. 6295(o)), today's proposed rule would establish energy conservation standards for central airconditioners and heat pumps that are designed to achieve the maximum improvement in energy efficiency that DOE has determined to be both technologically feasible and economicallyjustified. A full discussion ofthe alternatives considered by DOE ispresented in the "Regulatory Impact Analysis" section ofthe TSD for today's proposed rule.

I. Review Under the Treasury and General Government Appropriations Act. 1999 Section 654 ofthe Treasury and General Government Appropriations Act, 1999 (Pub. L.

C:\WINDOWS\TEMP\airconditionerule.atd.wpd 74 July 2. 2001 (11:14AM) EE-RM/STD-98-440

# --:It ct<cR-.3
Section 202 ofUMRA authorizes an agency to respond to the content requirements of UMRA in any other statement or analysis that accompanies the proposed rule. 2 U.S.C.1532(c). The content requirements ofsection 202(b) ofUMRA relevant to a private sectormandate substantially overlapthe economic analysis requirements that apply under section 325(0) ofEPCA and Executive Order 12866. The SUPPLEMENTARYINFORMATION section ofthe January 22,2001, notice offinal rulemaking and "Regulatory ImpactAnalysis" section ofthe TSD for this proposed rule respondstothoserequirements.

Under section 205 ofUMRA, DOE is obligatedto identify and consider a reasonable number ofregulatory alternatives before promulgating arule for which a written statement under section 202 is required. DOE is required to select from those alternatives the most cost-effective and leastburdensome alternative that achieves the objectives ofthe rule unless DOE publishes an explanation for doing othenvise orthe selection ofsuch an alternative is inconsistent with law. As required by section 325(0) ofthe Energy Policy and Conservation Act (42 U.S.C. 6295(0», today's proposed rule would establish energy conservation standards for central air conditioners and heat pumps that are designed to achieve the maximum improvement in energy efficiency that DOE has determined to be bothtechnologically feasible and economicallyjustified. A full discussion ofthe alternatives consideredby DOE is presented inthe "Regulatory ImpactAnalysis" section ofthe TSD for today'sproposed rule.

I. Review Underthe Treasury and General Government Appropriations Act, 1999 Section 654 ofthe Treasury and General Government Appropriations Act, 1999 (Pub. L. 

### 74 C:IWlNOOWS\TEMPlaircondilionerrule.ald.wpd July 2. 2001 (II 14AM)

### EE-RM/STD-98-440 -- ~,G . No. 105-277) requires Federal agencies to issue a Family Policymaking Assessment for any proposed rule or policy that may affect family well-being. Today's proposed rule would not have any impact on the autonomy or integrity ofthe family as an institution. Accordingly, DOE has concluded that it is not necessary toprepare a Family Policymaking Assessment.

J. Review Under Executive Order 13211 Executive Order 13211, "Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use," (66 FR 28355, May 22, 2001) requires Federal agencies to prepare and submit to the Office ofInformation and Regulatory Affairs (OIRA), Office ofManagement and Budget, a Statement ofEnergy Effects for any proposed significant energy action. A "significant energy action" is defined as any action by an agency that promulgates or is expected to lead to the promulgation ofa final rule, and that: (1) is a significant regulatory action under Executive Order 12866, or any successor order; and (2) is likely to have a significant adverse effect on the supply, distribution, or use ofenergy; or (3) is designated by the Administrator of OIRA as a significant energy action. For any proposed significant energy action, the agency must give a detailed statement ofany adverse effects on energy supply, distribution, or use should the proposed action be implemented, and ofreasonable alternatives to the action and their expected benefits on energy supply, distribution, and use.
Today's proposal would not have any adverse effects on the supply, distribution, or use of energy in the near term because neither the January 22, 2001 final rule nor any final rule resulting from this action would have any effect on the manufacture ofcentral air conditioners and heat

C:'WINDOWSTEMP:airconditionemule.atd.wpd 75 July2. 2001 (11:14AM)

EE-RM/STD-98-440

# -';]I:-**~~**

## -.3
. No.105-277) requires Federal agencies to issue a Family Policymaking Assessment for any proposed rule orpolicy that may affect family well-being. Today'sproposed rule would nothave any impact on the autonomy or integrity ofthe family as an institution. Accordingly, DOEhas concluded that it is not necessary toprepare a Family Policymaking Assessment.



### 1. Review UnderExecutiveOrder 13211 Executive Order 13211, ··ActionsConcerning Regulations That Significantly Affect Energy Supply, Distribution, orUse," (66 FR28355, May 22, 2001)requires Federal agencies to prepare and submit to the OffIce oflnfonnation and Regulatory Affairs (OIRA), Office ofManagement and Budget, a Statement ofEnergy Effects for any proposed significant energy action. A "significant energy action" is defined as any action by an agency that promulgates oris expected to lead to the promulgationofa final rule, and that: (1) is a significant regulatory action under Executive Order 12866, orany successor order; and (2) is likely to have a significant adverse effect on the supply, distribution, or use ofenergy; or (3) is designated by the Administratorof OIRA as a significant energy action. Forany proposed significant energy action, the agency must give a detailed statement ofany adverse effects on energy supply, distribution, oruse shouldthe proposed action be implemented, and ofreasonable alternatives to the action and their expected benefits on energy supply, distribution, and use.
Today's proposal would not have any adverse effects on the supply, distribution, oruse of energy in the near term because neither the January 22, 2001 final rule nor any final rule resulting from this action would have any effect on the manufacture ofcentral air conditioners and heat
75 C 'WINDOWS'TEMPlaifCondilionerrule,atd,wpd July 2. 2001 (I 1:14AM)EE-RM/STD-98-4 4 0-_ , 7 

### pumps until 2006. In the longer term, beginning in 2006, the proposed rule, ifimplemented, would have a positive impact on the reliability ofelectricity supply in the United States. The standards that DOE is proposing would represent a 20 percent improvement in the energy efficiency ofsplit-system central air conditioners, and a 9percent improvement in heating efficiency for heat pumps. The proposed standards would improve the cooling efficiency of single-package heatpumps by 24 percent and the heating efficiency ofsingle-package heat pumps by 12 percent. Asexplained in Section IV.B.3. ofthis SUPPLEMENTARY INFORMATION, DOE estimates the standards would save approximately 3quads ofenergy over 25 years (2006 through 2030). Also, in determining whetherthe proposed standards are economically justified, DOE considered as a benefit the potential ofthe proposed standards to improve thereliability of the electric generation and distribution system. See Section IV.D.7 ("Other Factors") and the preamble to the January 22 final rule. 66 FR 7181-82, 7194. DOE's analysis shows the proposed standards would result in an estimated reduction in installed generation capacity in the year 2020 ofapproximately 11 gigawatts. This would be the equivalent ofthree 400 megawatt coal-fired plants and twenty-three 400 megawatt gas-fired plants. DOE acknowledges that projections indicate that the standard levels set out in the January 22, 2001 rulemaking would avoid electricity consumption to an even greater extent than under the standard level proposed in today's supplemental notice ofproposed rulemaking. However, section 325 ofEPCA requires DOE to weigh all ofthe significant costs and benefits associated with standard levels that are being considered and notjust avoided electricity costs. DOE has set forth its evaluation ofcosts and benefits elsewhere in this notice (see Section V.C.). DOE has also considered various regulatory and non-regulatory alternatives to today's proposed standard 76 J ,2001(C \WINDOWS'TEMP\airconditionemile ald.wpd 76 Jul) 2,2001 (11:14AM) EE-RM/STD-98-440

# --:/F--c:<.::<**~.** pumps until 2006. In the longerterm, beginning in 2006, the proposed rule, ifimplemented, would have a positive impact onthe reliability ofelectricity supply in the United States. The standards that DOE is proposingwould represent a 20 percent improvement in the energy efficiency ofsplit-system central airconditioners, and a 9 percent improvement in heating efficiency for heat pumps. The proposed standards would improvethe cooling efficiency of single-package heatpumpsby 24 percent and the heating efficiency ofsingle-package heat pumps by 12 percent. As explained in SectionIV.B.3. ofthis SUPPLEMENTARY INFORMATION, DOE estimates the standards would 5a\'e approximately 3 quads ofenergy over 25 years (2006 through 2030). Also, in determining whetherthe proposed standards are economicallyjustified, DOE considered as a benefitthepotential ofthe proposed standardsto improve the reliability of the electric generation and distribution system. See SectionIV.b.7 ("Other Factors") and the preamble to the January 22 final rule. 66 FR 7181-82, 7194. DOE'sanalysis shows the proposed standards would result in an estimated reduction in installed generation capacity in the year2020 ofapproximately 11 gigawatts. This would be the equivalent ofthree 400 megawatt coal-fired plants and twenty-three 400 megawatt gas-fired plants. DOE acknowledges that projections indicate that the standard levels set out in the January 22, 2001 rulemaking would avoid electricity consumptionto an even greater extent than underthe standard level proposed in today's supplemental notice ofproposed rulemaking. However, section 325 ofEPCA requires DOEto weigh all ofthe significant costs and benefits associated with standard levels that are being considered and notjustavoided electricity costs. DOE has set forth its evaluation ofcosts and benefits elsewhere in this notice (see Section V.c.). DOEhas also considered various regulatory and non-regulatory alternatives to today's proposed standard
76 C \WINDOWS'TEMPlalrconditionenuJe atd.wpd July 2.2001 (I 1:14AM)

### EE-RM/STD-98-440 -'-',3 (see Section VI.B., "Review Under Executive Order 12866," and the Regulatory Impact Analysis portion ofthe TSD). DOE has concluded that the costs associated with elevating the current standard to the standard level set forth in the January 22, 2001, final rule exceed the associated benefits, including thebenefit ofavoided electricity consumption.

VII. Public Comment A. Written Comment Procedures DOE invites interested persons to participate inthe proposed rulemaking by submitting data, comments, or information with respect to the proposed issues set forth in today's proposed rule toMs. Brenda Edwards-Jones, at the address indicated at the beginning ofthis notice. We will consider all submittals received by the date specified atthe beginning ofthis notice in developing the final rule.
According to 10 CFR 1004.11, any person submitting information that he or she believes to be confidential and exempt by law from public disclosure should submit one complete copy of the document and ten (10) copies, ifpossible, from which the information believed to be confidential has been deleted. DOE will make its own determination with regard to the confidential status ofthe information and treat it according to its determination.

Factors ofinterest to DOE when evaluating requests to treat as confidential information thathas been submitted include: (1) a description ofthe items; (2) an indication as to whether and why such items are customarily treated as confidential within the industry; (3) whether the

C:\WINDOWS\TEMP\airconditionerrule.atd wpd 

### 77 July 2.2001 (11:14AM) EE·RM/STD·98·440

## -~3

# . (see Section Vl.B., "ReviewUnderExecutive Order 12866," and the Regulatory Impact Analysis portion ofthe TSD). DOE has concluded that the costs associated with elevating the current standard to the standard level set forth in the January 22, 2001, final rule exceed the associated benefits, including the benefit ofavoided electricity consumption.



### VII. Public Comment A. Written Comment Procedures DOE invites interestedpersons toparticipateinthe proposed rulemaking by submitting data, comments, orinfonnation with respect to the proposed issues set forth in today'sproposed rule toMs. Brenda Edwards-Jones, at the address indicated at the beginning ofthis notice. We will consider all submittals received by the date specified at the beginning ofthis notice in developingthe final ruJe.
According to 10 CFR 1004.] ], any person submitting infonnationthat he or she believes to be confidential and exemptby Jaw from public disclosure should submit one complete copy of the document and ten (l0) copies, ifpossible, from which the infonnation believed to be confidential has.been deleted. DOE will make its own detennination with regard to the confidential status ofthe information and treat it accordingto its determination.

Factors ofinterestto DOEwhen evaluatingrequests totreat as confidential information thathasbeen submitted include: (1) a description ofthe items; (2) an indication as to whether and why such items are customarily treated as confidential within the industry; (3) whetherthe
77 C:IWINDOWSITEMPlairconditionerrule.atd.wpd July 2. 2001 <II :14AM)

### EE-RM/STD-98-440 -- 4 m 

### 3 information is generally known by or available from other sources; (4) whether the information has previously been made available to others without obligation concerning its confidentiality; (5)
an explanation ofthe competitive injury to the submitting person which would result from public disclosure; (6) an indication as to when such information might lose its confidential character due to the passage oftime; and (7) whether disclosure ofthe information would be contrary to the public interest.

B. Public Workshop/Hearing I. Procedure for Submitting Requests to Speak You will find the time and place ofthe public hearing listed at the beginning ofthis notice. We invite any person who has an interest in today's notice, or who is a representative ofa group or class ofpersons that has an interest in these issues, to request an opportunity to make an oral presentation. Ifyou would like to attend the public hearing, please notify Ms. Brenda EdwardsJones at (202) 586-2945. You may hand deliver requests to speak to the address indicated at the beginning ofthis notice between the hours of8:00 a.m. and 4:00 p.m., Monday through Friday, except Federal holidays. You may also send them by mail or E-mail to brenda.edwardsjones@ee.doe.gov.

The person making the request should state why he or she, either individually or as a representative ofa group or class ofpersons, is an appropriate spokesperson, briefly describe the nature ofthe interest in the rulemaking, and provide a telephone number for contact. We request each person selected to be heard to submit an advance copy ofhis or her statement at least two

C :\WINDOWS\TEMP\airconditionerule.atd wpd 

### 78 July 2, 2001 (11:14AM) EE-RM/STD-98-440

# 4-AA3. information is generally known by oravailable from other sources; (4) whetherthe information haspreviously been made available to others without obligation concerning its confidentiality; (5)
an explanation ofthe competitive injury to the submittingperson which would result from public disclosure; (6) an indication as to when such informationmight lose its confidential characterdue to the passage oftime; and (7) whetherdisclosure ofthe information would be contrary to the public interest.

B. Public WorkshoplHearing I. Procedure for Submitting Requests to Speak You will find the time and place ofthepublic hearing listed at the beginning ofthis notice. We invite any person who has an interest in today's notice, orwho is a representative ofa group
or class ofpersons that has an interest in these issues, to request an opportunity to make an oral presentation. Ifyou would like to attend the public hearing, please notify Ms. Brenda EdwardsJones at (202) 586-2945. You may hand deliver requests to speak to the address indicated at the beginning ofthis notice between the hours of8:00 a.m. and 4:00 p.m., Monday through Friday, except Federal holidays. You may also send them by mail orE-mail to brenda.edwardsjones@ee.doe.gov.

The person making the request should state why he orshe, eitherindividually oras a representative ofa group or class ofpersons, is an appropriate spokesperson, briefly describe the nature ofthe interest in the rulemaking, and provide a telephone number for contact. We request each person selected to be heard to submit an advance copy ofhis orher statement at least two
78 C.IWINDOWSITEMP\airconditionerrule.atd.wpd July 2. 2001 (1I14AM)

### EE-RM/STD-98-440--- 

### c,- weeks prior to the date ofthis hearing as indicated at the beginning ofthis notice. At our discretion, we may permit any person who cannot do this to participate ifthat person has made alternative arrangements with the Office ofBuilding Research and Standards in advance. The request to give an oral presentation should ask for such alternative arrangements.

2. Conduct ofHearing DOE will designate a DOE official topreside atthe workshop and we may also use a professional facilitator to facilitate discussion. The workshop will not be ajudicial or evidentiarytype hearing, but DOE will conduct itin accordance with 5 U.S.C. 553 and Section 336 ofthe Act and a court reporter will be present to record the transcript ofthe workshop. We reserve the right to schedule the presentations by workshop participants, and to establish the procedures governing the conduct ofthe workshop.

DOE will permit each participant to make a prepared general statement, limited to five (5) minutes, prior to the discussion ofspecific topics. DOE will permit otherparticipants to briefly comment on any general statements.

DOE will introduce each topic with a brief summary ofthe relevant parts ofour analysis and ofthe proposed rule, and the significant issues involved. We will then permit participants in the hearing to make a prepared statement limited to five (5) minutes on that topic. At the end of all prepared statements on a topic, DOE will permit each participant to briefly clarify his or her statement and comment on statements made by others. Participants should be prepared to answer 79 C:\WINDOWS\TEMP\airconditioneIle.ald wpd 7 July 2, 2001 (11:14AM) weekspriorto the date ofthis hearing as indicated at the beginning ofthis notice. At our discretion, we may permit any personwho cannotdo this to participate ifthat person hasmade aJternative arrangements with the Office ofBuilding Research and Standards in advance. The request to give an oral presentation should ask for such alternative arrangements.

2. Conduct ofHearing DOEwill designate a DOE officialtopresideatthew\}rkshop andwemay also use a professional facilitator to facilitate discussion. The workshop will notbe ajudicial orevidentiarytype hearing, but DOE will conduct it

### in accordance with 5 U.S.c. 553 and Section336ofthe Act and a court reporter will bepresent to record the transcript ofthe workshop. Wereserve the right to schedule the presentationsby workshop participants, and to establish the proceduresgoverning the conduct ofthe workshop.

DOE will permit eachparticipant to make a prepared general statement, limited to five (5) minutes, priorto the discussion ofspecific topics. DOE will permit otherparticipants to briefly comment on any general statements.

DOE will introduce each topic with a briefsummary ofthe relevant parts ofour analysis and ofthe proposedrule, and the signiflcant issues involved. We will then permitparticipants in the hearing to make a prepared statement limited to five (5) minutes onthattopic. Atthe end of all prepared statements on a topic, DOEwill permit each participant to briefly clarify his orher statement and comment on statements madeby others. Participants should beprepared to answer 

### 79 C:IWINDOWSITEMPIa"condilionerrulc.8Idwpd July 2, 200I (1I14AM)

### EE-RM/STD-98-440 --. ,?3 . questions by us and by other participants concerning these issues. Our representatives may also ask questions ofparticipants concerning other matters relevant to the hearing. The total cumulative amount oftime allowed for each participant to make prepared statements will be 20 minutes.

The official conducting the hearing will accept additional comments or questions from those attending, astimepermits. Thepresidingofficial will announce any furtherprocedural rules, or modification ofthe above procedures, needed for the proper conduct ofthehearing.

We will make the entire record ofthis rulemaking, including the transcript, available for inspection in DOE's Freedom ofInformation Reading Room. Any person maypurchase a copy of the transcript from the transcribing reporter.

C \WINDOWS'TEMP\airconditionerruleatd.wpd 80 Jul) 2,2001 (11:14AM) EE-RM/STD-98-440

## -.#-c:<,~3 

# . questions by us and by otherparticipants concerning these issues. Ourrepresentatives may also ask questions ofparticipants concerning othermatters relevant to the hearing. The total cumulative amount oftime allowed for eachparticipant to make prepared statements will be 20 minutes.

The official conducting the hearing will accept additional comments or questions from those attending, astimepermits. 

### The presiding official will announce any further procedural rules, or modifIcation ofthe above procedures, needed for the proper conduct ofthe hearing.

We will make the entire record ofthis rulemaking, including the transcript, available for inspection in DOE'sFreedom ofInformationReading Room. Any person may purchase a copy of the transcript from the transcribing reporter.

80 C·\WINDOWS\TEMPlairconditionerrule.atd.wpd Jul) 2.2001 (II:I 4AM)

### EE-RM/STD-98-440 - 4'/<-3 List ofSubjects in 10 CFR Part430 Administrative practice and procedure, Energy conservation, Household appliances.

Issued in Washington, D.C., on

David K. Garman Assistant Secretary Energy Efficiency and Renewable Energy

C:\WINDOWS',TEMP.aircdiiodionerul atd.wpd 81 Jul) 22001 (11:14AM) EE-RM/STD-98-440

## -#~3 List ofSubjects in 10 CFR Part430 Administrativepractice and procedure, Energy conservation, Household appliances.

Issued in Washington, D.C., on

David K. Gannan Assistant Secretary Energy Efficiency and Renewable Energy

81 C:I'W1NDOWS'.TEMP.alrconditlonerrule atd.wpd Jul) 2.2001 (I 1:14AM)

### EE-RM/STD-98-440 -' 3 For the reasons set forth in the preamble, Part 430 ofChapter II ofTitle 10, Code of Federal Regulations isproposed to be amended, as set forth below.

PART 430 - ENERGY CONSERVATION PROGRAM FOR CONSUMER PRODUCTS 1. The authority citation for Part 430 continues to read as follows: Authority: 42 U.S.C. 6291-6309; 28 U.S.C. 2461 note.

2. Section 430.2 is amended by adding definitions for "effective date," "maximum allowable energy use," "minimum required energy efficiency," and "through-the-wall air conditioner and heat pump" in alphabetical order to read as follows:
§430.2 Definitions.

Effective date means the date on and after which a manufacturer must comply with an energy conservation standard in the manufacture ofa covered product.

Maximum allowable energy use means an energy conservation standard for a covered product, expressed in terms ofa maximum amount ofenergy that may be consumed, which is established by statute or by a final rule that has modified thispart pursuant to a date DOE has selected consistent with the Congressional Review Act (5 U.S.C. 801-804) and any other applicable law.

Minimum required energy efficiency means an energy conservation standard for a covered
82 ,2001(C:\WINDOWS\TEMP\aircondilionerm l aidwp 82 Jul) 2,2001(11.14AM) EE-RM/STD-98-440

## -4F-~~3 

# . Forthe reasons set forth in the preamble, Part430 ofChapterII ofTitle 10, Code of Federal Regulations is proposed to be amended, as set forth below.

PART430

- ENERGY CONSERVATION PROGRAM FOR CONSUMERPRODUCTS 1. The authority citation for Part 430 continues to read as follows: Authority: 42 U.S.C. 6291-6309; 28 V.S.C. 2461 note.

2. Section 430.2 is amended by adding definitions for "effective date," "maximum allowable energy use," '"minimum required energy efficiency," and "through-the-wall air conditioner and heat pump" in alphabetical orderto read as follows:


### §430.2 Defini.tions. 

## * * * * 

## * Effective date means the date on and after which a manufacturer must comply with an energy conservation standard in the manufacture ofa covered product. 

## * * * * 

## * Maximum allowable energy use means an energy conservation standard for a covered product, expressed in terms ofa maximum amount ofenergy that may be consumed, which is established by statute orby a final rule that has modified this part pursuantto a date DOEhas selected consistentwith the Congressional Review Act (5 V.S.c. 801-804) and any otherapplicable law. 

## * * 

# • * 

## * Minimum required energv efficiency means an energy conservation standard for a covered
82 C:\WINDOWSITEMP\aircond'lionerrule.ald.wpd July 2, 2001 (11I4AM)

### EE-RM/STD-98-440 - ; , c-

h 3 

### product, expressed in terms a minimum efficiency quotient, which is established by statute or by a final rule that has modified this part pursuant to a date DOE has selected consistent with the Congressional Review Act (5 U.S.C. 801-804) and any other applicable law.
* * * * * 

### Through-the-wall air conditioner and heat pump means a central air conditioner or heat pump that isdesigned to be installed totally or partially within a fixed-size opening in an exterior wall, and: (1) Is manufactured prior to [INSERT DATE 9 YEARS AFTER DATE OF PUBLICATION IN THE FEDERAL REGISTER]; (2) Is not weatherized; (3) Is clearly and permanently marked for installation only through an exterior wall; (4) Has a rated cooling capacity no greater than 30,000 Btu/hr; (5) Exchanges all ofits outdoor air across a single surface ofthe equipment cabinet; and (6) Has a combined outdoor air exchange area ofless than 800 square inches (split systems) or less than 1,210 square inches (single packaged systems) as measured
on the surface described in (5).
* * * * *



### 3. Section 430.32 ofSubpart C is amended by revising paragraph (c) to read as follows:
§ 430.32 Energy and water conservation standards and effective dates.

C:\WINDOWS\TEMPN airconditionerrule atd.wpd 83 July 2,2001 (II 14AM) EE-RM/STD-98-440 

# -:IF**~3** product, expressed in tenns a minimum efficiency quotient, which is established by statute orby a final rule that has modified thispart pursuant to a date DOEhas selected consistent with the Congressional Review Act (5 U.S.c. 801-804) and any other applicable law
. 

# • 

# • • • 

# • Through-the-wall air conditioner and heatpump means a central air conditionerorheat pumpthat isdesigned to

### be installed totally orpartially within a fixed-size opening in an exterior wall, and: (l) Is manufacturedpriorto (INSERT DATE 9 YEARS AFTERDATE OF PUBLICATIONIN THEFEDERAL REGISTER]; (2) Is not weatherized; (3) Is clearly and pennanently marked for installation only through an exterior wall; (4) Has a rated cooling capacity no greater than 30,000 Btu/hr; (5) Exchanges all ofits outdoor air across a single surface ofthe equipment cabinet; and (6) Has a combined outdoor air exchange area oflessthan 800 square inches (split systems) or less than 1,210 square inches (single packaged systems) as measured
on the surface described in (5). 

## * * * * 

# •

3. Section430.32 ofSubpart C is amended by revising paragraph (c) to read as follows:


### §430.32 Energy and waterconservation standards and effective dates.

83 C:IWlNDOWSlTEl\I!P\airconditionerrule.atd.wpd July 2, 2001 (1I.14AM)

### EE-RM/STD-98-440 - <- * * * * * 

### (c) Central air conditioners and central air conditioning heat pumps. (1) Split system central air conditioners and central air conditioning heat pumps manufactured after January 1, 1992, and before [INSERT DATE 5 YEARS AFTER DATE OF PUBLICATION IN THE FEDERAL REGISTER], and single package central air conditioners and central air conditioning heat pumps manufactured after January 1, 1993, and before [INSERT DATE 5 YEARS AFTER DATE OF PUBLICATION IN THE FEDERAL REGISTER], shall have Seasonal Energy Efficiency Ratio and Heating Seasonal Performance Factor no lessthan: Product class Seasonal Energy Heating Seasonal Efficiency Ratio Performance Factor 1. Split systems...................................... 10.0 .6.8 2. Single package systems...................... 9.7 6.6 (2) Central air conditioners and central air conditioning heat pumps manufactured on or after [INSERT DATE 5 YEARS AFTER DATE OF PUBLICATION IN THE FEDERAL REGISTER], shall have Seasonal Energy Efficiency Ratio and Heating Seasonal Performance Factor no less than:

-~84 .C:\'WINDOWS\TEMP\airconditionerrule.atd.wpd 

### 84 Jul) 2, 2001 (11:14AM) EE-RM/STD-98-440 

# -tF:**~~3** 

## . 

# • • 

# • • • (c) Central air conditioners and central airconditioning heat pumps. (1) Split system central air conditioners and central airconditioningheatpumpsmanufactured afterJanuary 1, 1992, and before [INSERT DATE 5 YEARS AFTER DATE OF PUBLICATION IN THE FEDERAL REGISTER}, and singlepackage central airconditioners and central airconditioning heat pumps manufactured afterJanuary 1, 1993, and before [INSERTDATE 5 YEARSAFTERDATE OF PUBLICATION IN THE FEDERALREGISTER], shall have Seasonal Energy Efficiency Ratio and Heating Seasonal Perfonnance Factorno lessthan: Product class Seasonal Energy Heating Seasonal Efficiency Ratio Performance Factor 1. Split systems...................................... 10.0 6.8 2. Single package systems...................... 9.7 6.6 (2) Central air conditioners and central air conditioning heat pumps manufactured onor after [INSERT DATE 5 YEARSAFTERDATE OF PUBLICATION IN THE FEDERAL REGISTER], shall have Seasonal Energy Efficiency Ratio and Heating Seasonal Performance Factor no less than:

84 C.IWlNDOWSlTEMP'Iai,condition.rrul•.atd.wpc! Jul)· 2. 2001 (IL14AM)

### EE-RM/STD-98-440 -f 3 . Seasonal Energy Heating Seasonal Product class Efficiency Ratio Performance Factor (SEER) (HSPF) 1. Split system air conditioners................................................. 12 2. Split system heat pumps........................................................ 12 7.4 3. Singlepackage air conditioners............................................. 12 4. Singlepackage heat pumps.................................................. 12 7.4 5.A. Through-the-wall air conditioners and heat pumps - split system....................................................................................... 11 7.1 5.B. Through-the-wall air conditioners and heat pumps - single package..................................................................................... 10.6 7.0

* * * e * 

### 4. Section 430.34 is added to Subpart C to read as follows:
§430.34 Energy and water conservation standards amendments

The Department ofEnergy may not prescribe any amended standard which increases the maximum allowable energy use or, in the case of showerheads, faucets, water closets or urinals, water use, or which decreases the minimum required energy efficiency ofa covered product.

C:\WINDOWS\TEMPaircondltionerrule atdwpd 85 Jul) 2.2001 (11:14AM) EE-RM/STO-98-440 

# --.::tt:M3
. Seasonal Energy Heating Seasonal Product class Efficiency Ratio Performance Factor (SEER) (HSPF) 1. Split system air conditioners
................................................. 12 

# - 2. Split system heat pumps........................................................ 12 7.4 3. Singlepackage air conditioners
............................................. 12 

# - 4. Singlepackage heat pumps................................................... 12 7.4 5.A. Through-the-wall air conditioners and heatpumps- split system....................................................................................... 11 7.1 5.B. Through-the-wall air conditioners and heat pumps - single package
..................................................................................... 10.6 7.0 

## • • • 4. Section 430.34 is added to Subpart C to read as follows:


### §430.34 Energy and water conservation standards amendments

The Department ofEnergy may not prescribe any amended standard which increasesthe maximum allowable energy use or, in the case ofshowerheads, faucets, water closets or urinals, wateruse, orwhich decreases the minimum required energy efficiency ofa covered product.

85 C:IWINDOWSITEMP\a,rcondltlonerrule.atd.wpd Jul) 2.2001 (J II4AM)

### Appendix EE-RM/STD-98-440 -" <: 

### ? 

### . [The following letter from Department ofJustice will not appear in the Code ofFederal Regulations.]



### DEPARTMENT OF JUSTICE Antitrust Division 

### A. DOUGLAS MELAMED Acting Assistant Attorney General Main Justice Building 950 Pennsylvania Avenue. N. W. Washington, D.C. 20530-0001 (202) 514-2401/ (202) 616-2645 (f) antitrust@justice.usdoj.gov (internet) http://www.usdoj.gov (World Wide Web)
December 4, 2000
Mary Anne Sullivan, General Counsel Department ofEnergy Washington, D.C. 20585
Dear General Counsel Sullivan: I am responding to your October 16, 2000 letter seeking the views ofthe Attorney General about the potential impact on competition oftwo proposed energy efficiency standards: one for clothes washers and the other for residential central air conditioners and heat pumps. Your request was submitted pursuant to Section 325(o)(2)(B)(i) ofthe Energy Policy and Conservation Act, 42 U.S.C. §6291, 6295 ("EPCA"), which requires the Attorney General to make a determination of the impact ofany lessening ofcompetition thatis likely to result from the imposition ofproposed energy efficiency standards. The Attorney General's responsibility for responding to requests from other departments about the effect ofa program on competition has been delegated to the Assistant Attorney General for the Antitrust Division in 28 CFR § 0.40(g).

„,~86 

### ~ ~ C:\WINDOWS\TEMPairconditionrrule aldwpd 

### 86 Juls 2. 2001 (11:14AM) Appendix EE-RM/STD-98-440

# -~**cR~3**

# .. [The following letter from Department ofJustice will not appear in the Code ofFederal Regulations.]

Mary Anne Sullivan, General Counsel Department ofEnergy Washington, D.C. 20585
Dear General Counsel Sullivan: 

### DEPARTMENT OFJUSTICE AntitrustDivision 

### A. DOUGLAS MELAMED Acting Assistant Attorney General Main Justice Building 950 Pennsylvania Avenue. N. W. Washington, D.C. 20530-0001 (202) 514-2401/(202) 616-2645 (f) antitrust@justice.usdoj.gov (internet) http://www.usdoj.gov (World Wide Web)
December4,2000

I 

### am responding to your October 16,2000letter seeking the views ofthe Attorney General aboutthepotential impact on competitionoftwo proposed energy efficiency standards: one for clothes washers and the other for residential ceritralairconditioners and heat pumps. Yourrequest was submitted pursuant to Section 325(0)(2)(B)(i) ofthe Energy Policy and Conservation Act, 42 U.S.C. §6291, 6295 ("EPCA"), which requires the Attorney General to make a determination of the impact ofany lessening ofcompetition that is likely to result from the imposition ofproposed energy efficiency standards. The Attorney General's responsibility for responding to requests from otherdepartments about the effect ofa program on competitionhasbeen delegated to the Assistant Attorney General for the Antitrust Division in 28 CFR 

### §0.40(g).

86 C:IWINDOWSlTEMPlaircond,l1oncrrule ald.wpd**Jul~** 2, 200I (II 14AM)

### EE-RMI/STD-98-44o-0 ' 

# 3

. We have reviewed the proposed standards and the supplementary information published in the Federal Register notices and submitted tothe Attorney General, which include information provided to DOE ofEnergy by manufacturers. We have additionally conducted interviews with members ofthe industries. We have concluded that the proposed clothes washer standard would not adversely affect competition. Inreaching this conclusion, we note that the proposed standard is based on ajoint

- recommendation submitted to DOE ofEnergy by manufacturers and energy conservation advocates. That recommendation states that virtually all manufacturers ofclothes washers who sell in the United States participated in arriving atthe recommendation through their trade association, that the recommendation wasdeveloped in consultation with small manufacturers, and that themanufacturers believe the new standard would not likely reduce competition. We note furtherthat, as the industry recommended, theproposed standard will be phased in over six years, which will allow companies that do not already have products that meetthe proposed standard sufficient time toredesign their product lines. With respect to the proposed residential central air conditioner and heatpump standard, we have concluded that there could be an adverse impact on competition. The proposed standard, Trial Standard Level 3, is expressed in terms oftwo industry measurements: SEER (Seasonal Energy Efficiency Ratio) and HSPF (Heating Seasonal Performance Factor).' These standards would change from the current central air conditioner and heat pump efficiency standards of 10 SEER/6.8 HSPF for split system air conditioners and heat pumps and 9.7 SEER/6.6 HPSF for single package air conditioners and heat pumps to 12 SEER for air conditioners and 13 SEER/7.7 HPSF for heat pumps. We have identified three possible competitive problems presented by the proposed standards. First, the proposed 13 SEER heat pump standard would have a disproportionate impact on smaller manufacturers. Currently less than 20% ofthe total current product lines meet the proposed standards, but for some small manufacturers, 100% oftheir product lines fail to satisfy the proposed standard. Second, the proposed standard for heat pumps, and in some instances for air conditioners, would have an adverse impact on some manufacturers oftheseproducts (including those products referred to in the Federal Register notice as "niche products") used toretrofit existing housing and
'The Federal Register notice also requested comments on a proposal to adopt a standard for steady-state cooling efficiency (EER) and discussed several options DOE ofEnergy is considering. The proposed rule set forth inthe notice does not, however, include aprovision regarding an EER standard, and the views ofDepartment ofJustice expressed in this letter are limited to the impact ofany lessening ofcompetition
... that is likely to result from the imposition ofthe [proposed] standard," as required by EPCA. IfDOE ofEnergy proposes a rule in the future incorporating an EER standard, DOE will then evaluate that proposed rule and express its views about the competitive impact ofthat standard.
C :\WINDOWS\TEMPairconditionerrulcaid wpd 87 July 2, 2001 (11 14AM) EE-RM/STD-98-440

# -tv'**~.a.3** 

# . We have reviewed the proposed standards and the supplementary information published in the Federal Registernotices and submitted tothe Attorney General, which include information provided to DOEofEnergy by manufacturers. We have additionally conductedinterviews with members ofthe industries. We have concluded that the proposed clothes washer standard'wouldnot adversely affect competition. Inreaching this conclusion, wenote that the proposed standard is based on ajoint
. recommendation submitted to DOE ofEnergy by manufacturers and energy conservation advocates. Thatrecommendation statesthat virtually all manufacturers ofclothes washers who sell intheUnited Statesparticipated in arriving attherecommendationthroughtheirtrade association, that the recommendation wasdeveloped in consultation with small manufacturers, and that the manufacturers believe the new standard would not likelyreduce competition. We note further that, asthe industry recommended,theproposed standard

### willbephasedin over six years, which will allow companiesthat do not already haveproducts thatmeet

### the proposed standard sufficient time toredesigntheirproduct lines. With respect to the proposed residential central air conditioner and heatpump standard, we have concluded that there could be an adverse impact on competition. Theproposed standard, Trial Standard Level 3, is expressed in terms oftwo industry measurements: SEER (Seasonal Energy Efficiency Ratio) and HSPF (Heating Seasonal Performance Factor).' These standards would change from the current central air conditioner and heat pump efficiency standards of 10 SEERl6.8 HSPF for split system airconditioners and heat pumps and 9.7 SEERl6.6HPSF for single package air conditioners and heat pumps to 12 SEERfor air conditioners and 13 SEERJ7.7 HPSF for heat pumps. Wehave identified three possible competitive problemspresented by the proposed standards. First, the proposed 13 SEERheat pump standard would have a disproportionate impact onsmaller manufacturers. Currently less than 20% ofthe total current product lines meetthe proposed standards, but for some small manufacturers, 100% oftheirproduct lines fail to satisfy the proposed standard. Second, the proposed standard for heat pumps, and in some instances for airconditioners, would have an adverse impact on some manufacturers oftheseproducts (includingthose products referred to in the Federal Register notice as "niche products") used toretrofit existing housing and
'TheFederal Registernotice alsorequested comments on a proposal to adopt a standard for steady-state cooling efficiency (EER) and discussed several options DOEofEnergy is considering. The proposed rule set forth inthenotice does not, however, include a provision regarding an EER standard, and the views ofDepartmentofJustice expressed in this letter are limited to the impact ofany lessening ofcompetition
...that is likely to result from the imposition ofthe [proposed]**standard~"** as required by EPCA. IfDOE ofEnergy proposes a rule in the future incorporating an EER standard, DOE will then evaluate that proposed rule and express its views about the competitive impact ofthat standard. 87 C:I\liINDOWSlTEMPlairconditionelTUle.atd.wpd July 2, 2001 (II 14AM)

### EE-RM/STD-98-440 -- 7 ' 

# 3

. used in manufactured housing. These manufacturers could not make units that comply with the rule and fit into the available space. Third, the proposed heat pump standard of 13 SEER could make heat pumps less competitive with alternative heating and cooling systems. Because the standard will result in increases in the size and cost ofheat pumps, it is possible that purchasers will shift away from heat pumps to other systems that include electric resistance heat, reducing the competition that presently exists between heat pumps and those other systems. Department ofJustice urges DOE ofEnergy to take into account these possible impacts on competition in determining its final energy efficiency standard for air conditioners and heat pumps. DOE ofEnergy should consider setting a lower SEER standard for heat pumps, such as the standard included in Trial Standard Level 2, and a lower SEER standard for air conditioners for retrofit markets where there are space constraints (such as markets served by niche products) and for manufactured housing.
Sincerely A. Douglas Melamed

8 dC:\WINDOWS\TEMPairconditionerrule aidwpd 88 July 2, 2001 (11:14AM) EE-RM/STD-98-440 

# -if**62,~3.** used in manufactured housing. These manufacturers could not make units that comply with the
. rule and fit into the available space. Third, the proposed heatpump standard of 13 SEER could make heatpumps less competitive with alternative heatingand cooling systems. Because the standard will result in increases in the size and cost ofheat pumps, it ispossible thatpurchasers will shift away from heat pumps to other systemsthatinc1 ude electric resistance heat, reducing the competition that presently existsbetween heatpwnps and those other systems. Department ofJustice urges DOE ofEnergy to take into account thesepossible impacts on competition in determining its final energy efficiency standard for air conditioners and heat pumps. DOE ofEnergy shouldconsider setting a lower SEER standard for heatpumps, such as the standard included in Trial Standard Level 2, and a lower SEER standard for airconditioners for retrofit markets where there are space constraints (such as markets served by nicheproducts) and for manufactured housing.
Sincerely A. Doug1 as Melamed



### 88 C:IWJNDQWSlTEMP\airconditionemJle.atd.wpd July 2. 200I (I 1:14AM)