DEPARTMENT OF JUSTICE

Antitrust Division

JOEL I. KLEIN

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 (interet)

http:/www.usdoj.gov (World Wide Web)

July 10, 2000

Mary Anne Sullivan, General Counsel

Department of Energy

Washington, D.C. 20585

Dear General Counsel Sullivan:

I am responding to your May 10, 2000 letter seeking the

views of the Attorney General about the potential impact on

competition of the proposed energy efficiency standards for water

heaters, Docket No. EE-RM-97-900. Your request was submitted

pursuant to Section 325(o)(2)(B)(i) of the Energy Policy and

Conservation Act, 42 U.S.C. §6291, 6295, which requires the

Attorney General to make a determination of the impact of any

lessening of competition that is likely to result from the

imposition of proposed energy efficiency standards. The Attorney

General's responsibility for responding to requests from other

departments about the effect of a program on competition has been

delegated to the Assistant Attorney General for the Antitrust

Division in 28 CFR § 0.40(g).

We have reviewed the proposed standards, the supplementary

information published in the Federal Register notice, the

Technical Support Document, and information from water heater

manufacturers, their suppliers, and other interested parties.

The Antitrust Division has concluded that the proposed standards

could have an adverse effect on competition because water heater

manufacturers may have to use an input that will be produced by

only one source. We do not anticipate that the proposed standard

will affect competition among water heater manufacturers.

EE-RM-97-900 COMMENT 143
Page 2

Rather, competition to provide heater manufacturers with blowing

agents could be adversely affected, with resulting cost increases

to consumers.

In the analysis of the proposed standard that the Department

of Energy published in the Federal Register, the only design

options for affected electric water heaters that meet the DOE's

proposed standard require use of HFC-245fa as a blowing agent for

insulation. Insulation is an essential part of a water heater,

and HFC-245fa is a patented product that has only one supplier.

DOE's published analysis further concludes that gas-fired water

heaters have design options that would eliminate the need for

HFC-245fa, but at significant added costs.

Water heater manufacturers have objected to the proposed

standard on the grounds that their need to rely on a sole source

will make them vulnerable to supply disruptions and monopoly

pricing. Based on the analysis that DOE published, the concerns

of water heater manufacturers regarding HFC-245fa, and our

interviews with industry participants, the Antitrust Division has

concluded that competition could be adversely affected by the

adoption of the proposed standard.' The Department urges the

Department of Energy to take into account this impact on

competition in determining its final energy efficiency standard

for water heaters and to consider altering the standard so that

manufacturers may meet the standard for all affected models using

blowing agents for insulation other than HFC-245fa without adding

significantly to the costs of manufacturing water heaters.

oel I. Klein

' e note that some manufacturers have suggested that DOE

underestimated the performance capabilities of alternative blowing

agents. If these suggestions prove correct, water heater

manufacturers may in fact be able to comply with the proposed standard

for more models, while using water-based blowing agents. We also note

that it's possible that manufacturers may in fact be able to engineer

design options using water-based blowing agents with a greater

performance capability or lower cost than they now anticipate.

EE-RM-97-900 COMMENT 143