01/16/2007 1602 FAX



### DEPARTMENT OF JUSTICE
Antitrust Division

Main Justice Building 950 Pennsylvania Avenue, N.W. Washington, D.C. 20530-0001 (202) 514-2401 I (202) 616-2645 (Fax) e-mail: antitrustC? usdoj.gov Web site: http :llwww. usdoj

.gov/atr 

### January 16, 2007

FACSIMILE TRANSMITTAL AND FIRST CLASS MAIL Warren Belmar, Esq. Deputy General Counsel for Energy Policy U.S. Department of Energy Washington, D.C. 20585 Dear Deputy General Counsel Belmar: 0 002/003 

# 144

I am responding to your November 14, 2006 letters seeking the views of the Attorney General about the potential impact an competition of proposed energy efficiency standards relating to (1) liquid-immersed and medium-voltage, dry-type distribution transformers ("distribution transformers"), and (2) residential furnaces and boilers ("furnaces and boilers"). The Energy Policy and Conservation Act ("SPCA'") authorizes the Department of Energy ("DOE") to establish energy conservation standards for a number of appliances where DOE determines that those standards would be technologically feasible, economically justified, and result in significant energy savings. Your requests were submitted pursuant to Section 325(o)(2)(B)(I) of the Energy Policy and Conservation Act, 42 U.S.C. §6291, 6295 ("EPCA"), which states that, before the Secretary of Energy may prescribe a new or amended energy conservation standard, the Secretary shall ask the Attorney General to make a determination of "the impact of any lessening of competition ... that is likely to result from the imposition of the standard." 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). In conducting its analysis the Antitrust Division examines whether a proposed standard may lessen competition, for example, by placing certain manufacturers of a product at an unjustified competitive disadvantage compared to other manufacturers, or by inducing avoidable inefficiencies in production or distribution of particular products. In addition to harming consumers directly through higher prices, these effects could undercut the ultimate goals of the legislation. Your requests included the Notices of Proposed Rulemaking ("NOPR") that were published in the Federal Register and transcripts of public hearings relating to the proposed standards. The NOPR relating to distribution transformers proposed Trial Standard Level 2 and explained why DOE had decided not to propose higher trial standard levels. The NOPR relating 01/16/2007 16 02 FAX !ill 002/003 

# #144

., DEPARTMENT OF JUSTICE AntitrustDivision

Main Justice Budding 950 Pennsylvania Avenue, N.W. Washington, D.C. 20530·0001 (202) 514·24011 (202) 616-2645 (FIIX)**~:-mail;** antirrust@usdoj.gov Web site: hlfp:l/www.usdoj.gov/atr 

### January 16, 2007

FACSIMILE TRANSMITTAL AND FIRST CLASS MAIL Warren Belmar. Esq. Deputy General Counsel for Energy Policy 

# u.s. Department ofEnergy Washington, D.C. 20585 DearDeputy General Counsel Belmar:
I 

### am responding 

### to your November 14,2006 letters seeking the views ofthe Attorney General about the potential impact on competition ofproposed energy efficiency standards relating to (1) liquid-immersed and medium-voltage, dry-type distribution transfonners ("distribution transfonners"), and (2) residential furnaces and boilers ("furnaces and boilers"). The Energy Policy and Conservation Act ("EPCA") authorizes the Department ofEnergy ("DOE") to establish 

### energy conservation standards for anumbttr ofappliances where DOE detennines that those standards would be technologically feasible, economicallyjustified, and result in significant energy savings. Your requests were submitted pursuant to Section 325(0)(2)(B)(I) ofthe Energy Policy and Conservation Act, 42 U.S.C. §6291, 6295 ("EPCA"), which states that, before the Secretary ofEnergy may prescribe a new or amended energy conservation standard, the Secretary shall ask the Attorney General to make a determination of"theimpact ofanylessening ofcompetition

... that is likely to result from the imposition ofthe standard." The Attorney General's responsibility forresponding to requests from other departments about the effect ofaprogram on competition has been delegated to the Assistant Attorney General for the Antitrust Division in 28 CFR 

### §O.40(g). In conducting its analysis the 

### Antitrust Division examines whether a proposed standard may lessen competition, for example, byplacing certain manufacturers ofaproduct at an unjustified competitive di:iadvantage compared to other manufacturers, orbyinducing avoidable inefficiencies in production ordistribution ofparticularproducts. In addition to 

### harming consumers directly through higherprices, these effects could Wldercut the ultimate goals ofthe legislation. Your requests included the Notices ofProposed Rulemaking ("NOPR") that were published in the Federal Register and transcripts ofpublic hearings relating to the proposed standards. The NOPR relating to distribution transformers proposed Trial Standard Level 2 and explained why DOE had decided not to propose higher trial standard levels. The NOPR relating01/16/2007 16:02 FAX !i 003/003

to furnaces and boilers proposed the following standards: 80% annual fuel utilization efficiency ("AFUE") for non

-weatherized gas furnaces and mobile home gas furnaces ; 82% AFUE for oilfired furnaces ; 83% AFUE for weatherized gas furnaces and oil-fired boilers ; and 84% AFUE for gas boilers

. Our review regarding distribution transformers and furnaces and boilers has focused upon the standards DOE has proposed adopting; we have not determined the impact on competition of more stringent standards than those set forth in the NOPRs. In addition to the NOPRs and transcripts, your staff provided us comments that had been submitted to DOE regarding the proposed standards. (We understand that the docket has not closed with respect to furnaces and that more comments may be forthcoming.) We have reviewed these materials and additionally conducted interviews with members of the industries. Based on this inquiry, the Division is concerned that the distribution transformer Trial Standard Level 2 may adversely affect competition with respect to distribution transformers used in industries, such as underground coal mining, where physical conditions limit the size of equipment that can be effectively utilized

. We understand manufacturers would not be able to satisfy the proposed standard without increasing the size (or decreasing the power) of each class of distribution transformer

. Firms facing space constraints would incur significantly increased costs due to enlarging the required installation space (which, for example, could involve removal of solid rock around coal seams in underground mines ) or reconfiguring the size and number of each class of distribution transformers at each site

. The resulting cost increases could constitute production inefficiencies that could make certain products less competitive

. For example, the rule could, by raising the costs of certain coal mines , adversely affect production decisions at those mines and potentially result in increased use of less efficient energy alternatives

. We urge the DOE to consider these concerns carefully in its analysis , and to consider creating an exception for distribution transformers used in industries with space constraints. The Division is also concerned that the standards for weatherized gas furnaces and gas boilers could adversely affect competition

. We understand that manufacturers would have difficulty designing products that safely meet the proposed standards

. For weatherized gas furnaces, meeting the standard would likely result in increased condensation, potentially resulting in significant deterioration that would jeopardize the safety of the product, and, for weatherized gas-fired water boilers, meeting the standard would make effective carbon dioxide venting more difficult

. Any resulting costs incurred to solve these issues could adversely affect the competitiveness of these products in relation to electric heat pumps and water heaters

. We urge the DOE to carefully consider its proposed standards in light of these concerns.
Aside from the discussion above , the Division does not otherwise believe the proposed standards would adversely impact competition.



### Bruce McDonald cling Assistant Attorney General 01/16/2007 16:02 FAX lit! 003/003 

# #144

to furnaces and boilers proposed the following standards: 80% annual fuel utilization efficiency (UAFUE") 

### for non-weatherized gas furnaces and mobile home gas furnaces; 82% AFUE for oilfired 

### furnaces; 83% AFUE for weatherized gas furnaces 

### and oil-tired 

### boilers; and 84% AFUE 

### for gas boilers. Our

### review regarding distribution transfonners and furnaces and boilers has focused upon the standards DOE has proposed adopting; we bave not detennined the impact on competition of

### more stringent standards than those 

### set forth in the 

### NOPRs. In 

### addition to the NOPRs and transcripts, your staffprovided us comments that had been submitted to DOE regarding the proposed standards. (We understand that the docket has not closed with respect to furnaces and that more comments may be forthcoming.) We have reviewed these materials and additionally conducted interviews with members ofthe industries.
Based 

### on this inquiry, the 

### Division is concerned that the 

### distribution transformer Trial Standard 

### Level 2 

### may adversely affect competition with

### respect to distribution transfonners used in 

### industries, such as 

### underground coal mining, where physical conditions limit the size of 

### equipment that 

### can be effectively utilized. We understand manufacturers would not be able to satisfy the

### proposed standard without increasing the 

### size (or decreasing the power) ofeach class ofdistribution transfonner. Firms facing space constraints would incur significantly increased costs due to enlarging the required installation space (which, for example, could involve removal ofsolid rock around coal seams in underground mines) or reconfiguring the size and number of each class ofdistribution transfonners at each site. The resulting cost increases could constitute production inefficiencies that could make certain products less competitive. For example, the mle 

### could, by raising the costs ofcertain coal mines, adversely affect production decisions at those mines and potentially result in increased use ofless efficient energy alternatives. We urge the 

### DOE to consider these concerns carefully in its analysis, and to consider creating an exception for distribution transfonners used in industries with space constraints. The Division \5 

### also concerned that the standards for weatherized gas furnaces and gas boilers could adversely affect competition. We 

### understand that manufacturers would have difficulty designing products that safelymeet the proposed standards. For weatherized gas furnaces, meeting the standard would likely result in increased condensation, potentially resulting in significant deterioration that wouldjeopardize the safetyofthe product, and, for weatherized gas-fired water boilers, meeting the standard would make effective carbon dioxide venting more difficult. Any

### resulting costs incurred to solve these issues could adversely affect the competitiveness ofthese products in relation to electric heat pumps and waterheaters. We urge the DOE to carefully considerits 

### proposed standards in light ofthese concerns. Aside from the discussion above, the Division does not otherwise believe the proposed standards would adversely impact competition.



### Yo=

# SID;~tljA

# .Bruce~~ cting Assistan[ Attorney General