1 November 1 3 , 2014

Via E lectronic M

ail

The Honorable Ernest Moniz Secretary U.S. Department of Energy 1000 Independence Avenue, S.W. Washington DC 20585

Re: Energy Conservation Program; Proposed Energy Efficiency Standards for Automatic

Commercial Ice Makers ; 79 Fed. Reg. 14846 (March 17, 2014)

.

Dear Secretary Moniz,

On behalf of the Office of Advocacy, I am writing to bring to your attention the concer ns of

small manufacturers regarding t he Department of Energy’s (DOE ) Appliance and Equipment

Sta ndards program

. Advocacy supports the Department’s efforts to fulfill the mandate of the Energy Policy Conservation Act (EPCA) to redu ce national energy consumption through the development of energy efficiency stan dards; however, Advocacy h as concerns about the

c umulative and disproportionate impact that DOE’s standards may be having on small

manufacturers. DOE has recently proposed and adopted several energy efficiency regulations

that will have significant economic impacts on small business manufactur e rs , according to

DOE ’ s own analys es

. 1 Most recently, small manufacturers have expressed concerns regarding DOE’s proposed efficiency standards for automatic commercial ice makers. 2 Advocacy

recommends that DOE use its discretion to adopt an alternative to the prop osed standard that is

achievable for small manufacturers. Additionally, Advocacy recommends that DOE give similar

consideration to small manufacturers in all future energy efficiency rulemakings.

1 See Energy Conservation Program: Energy Conservation Standards for Small, Large, and Very Large Air

Cooled Commercial Package Air Conditioning and Heating Equipment

, 79 Fed. Reg. 58947 ( Sept ember 30, 2014); Energy Conservation Program: Energy Conserva tion Standards for General Service Fluorescent Lamps and Incandescent Reflector Lamps

, 79 Fed. Reg. 24067 (April 29, 2014) ; Energy Efficiency Standards for Certain

Commercial and Industrial Electric Motors

. 78 F ed. Reg. 73589 (Dec ember 6, 2013) ; Energy Conservation Program: Energy Conservation Standards for Commercial Refrigeration Equipment

, 78 F ed. Reg. 55889 (September 11, 2013) (all containing RFA analyses showing disproportionate and significant cos ts for small manufacturers).

2 See e.g. comments of Hoshizaki America and Ice

- O

- Matic, www.regulations.gov, RIN 1904

- AC39

.2

About the Office of Advocacy

Congress established Advocacy under Pub. L. 94

- 305 to represent the views of small entities before Federal agencies and Congress. Advocacy is an independent office within the U.S. Small Business Administration (SBA); as such the views expressed by Advocacy do not necessarily reflect the views of the SBA or the Administration. The Regulatory Flexibility Act (RFA), as amended by the Small Business Regulatory Enforcement Fairness Act (SBREFA), gives small entities a voice in the Federal rulemaking process. For all rules that are expected to have a significant economic impact on a substantial number of small entities, Federal agencies are required by the RFA to assess the impact of the proposed rule on small business and to consider

less burdensome alternatives. The Small Business Jobs Act of 2010 requires agencies to give every appropriate consideration to comments provided by Advocacy. The agency must include, in any explanation or discussion accompanying the final rule’s publication in the Federal Register, the agency’s response to these written comments submitted by Advocacy on the proposed rule, unless the agency certifies that the public inte rest is not served by doing so.

Advocacy’s Comments

Small Manufacturers Play an Important Role in Energy Efficiency Policy

Given the steadily rising cost of energy , manufacturers should have ample incentive to create

i nnovative products to meet growing consumer demand for energy efficient products. Indeed, in many cases, large manufacturers are already meeting or excee ding DOE’s proposed energy efficiency standards under EPCA. Small manufacturers can provide efficient and affordable choices to consumers that would not otherwise be in the market for high

- end replacement products. They also often manufacture niche products that serve consumers with unique needs

. It is important that DOE’s energy efficiency policy recognizes the value that small manufacturers bring to the table

. Adopting energy efficiency standards that impede the ability of small

manufacturers to r emain in the market is harmful from both an economic and energy efficiency standpoint.

Current DOE Policy May Significantly Disadvantage Small Manufacturers

EPCA requires DOE to adopt efficiency standards that achieve significant energy savings to the

exte nt they are economically justified. DOE’s current interpretation of this mandate often greatly disadvantages small manufacturers , as evidenced by DOE ’ s own RFA analyses

. EPCA provide s DOE with a rebuttable presumption that standards are economically justified when the consumer payback period is less than or equal to three years 3 ; however, in making this calculation, DOE

a verages costs across small and large firms. When DOE simply sets its standard s at the level

where average costs meet EPCA’s rebuttable presumption, DOE often imposes extremely disproportionate costs on small entities. This is especially problematic when small manufacturers only represent a small portion of the overall market for a given product, and their compliance

with a burdensome standard contributes relatively in significant energy savings.

3 EPCA provides for a rebuttable presumption that an energy conservation standard is economically justified if the additional cost to the consumer of equipment that meets the standard level is less than three times the value of the

first

- year energy s avings resulting from the standard, as calculated under the applicable DOE test procedure, see 42 U.S.C. 6295(o)(2)(B)(iii).3

The Proposed Standard for Commercial Ice Makers Will Harm Small M anufacturers

DOE’s proposed energy efficiency standards for automatic c ommercial ice makers will have a disproportionately negative impact on small business manufacturers. Small manufacturers have commented that the proposed standards for automatic commercial ice

- makers are not technologically achievable or economically feasible within the three year period prescribed by

DOE. 4 Yet, their co mpliance with the rule will not result in significant energy savings. The majority of firms manufacturing automatic commercial ice makers are small businesses , but they only represent 5 percent of the total market

, and thus will contribute only 5 percent of the overall energy savings achieved

. 5 According to DOE’s own data, t he adopting proposed trial standard level (TSL3) will re duce the industry net present val ue (INPV) of these small businesses manufacturing by $4.0 million, which repr esents a 78.6 pe rcent reduction in INPV f or small business manufacturing in the industry overall. 6 In contrast, the proposal will result in only a 23.8 percent reduction in INPV for large manufacturers

. 7

DOE Should Adopt an Alternative Standard to R educe Small Manufacturing Impacts

DOE should exercise its discretion to adopt a standard for commercial automatic ice

- makers that still achieves significant energy savings without imposing costs that will cause small businesses

to exit the market. While DOE can achieve the highest level of energy savings without exceeding a three yea r consumer payback period by adopting the proposed standard, DOE has clearly demonstrated that the costs of achieving those gains will be disproportionally felt by small

manufacturers. 8 DOE is expressly permitted to balance energy savings with costs to

manu facturers under EPCA , and may adopt a less burdensome standard as long it achieve s significant energy savings. For example

, adopting TSL 1 instead of TSL3 would reduce costs for small businesses by 41 percent and will still result i n a 4 percent increase i n national energy savings over the current baseline. 9 Advocacy believes that DOE has ample basis in the record to
make the determination that adopting TSL1 will achieves significant energy savings and is economically justified

.
DOE Must to Explain Its Rationale for Rejecting Significant Alternatives

The RFA requires that agencies analyze significant alternatives to proposed rules that will reduce disproportionate impacts of t heir rules on small entities. In its Initial Regulatory Flexibility Act Analysis (IRFA), DOE cites to TSL1 and TSL2 as significant alternatives. 10 If DOE d eclines to adopt either of these less burdensome standards

, the RFA requires DOE to explain its legal and policy reasons that decisi on in its Final Regu latory Flexibility Act Analysis (FRFA)

. 11 However,

if DOE believes it lacks the legal authority to adopt TSL1 or TSL2, it cannot also claim to have analyzed any significa nt alternatives under the RFA. Significant alternatives under the RFA

4 See supra note 2.

5 Proposed Energy Efficiency Standards for Automatic Commercial Ice Makers

, 79 Fed. Reg. 14846 at 1494 2 ( March 17, 2014).

6 Id.

7 Id.

8 Id.

9 Id. 14927, 14943.

10 Id. 14944.

11 5 U.S.C § 604(a)(5).4

must be alternatives that both “ accomplish the stated objectives of applicable statutes and which minimize significant economic impacts on small entities ”

. 12 I f DOE lacks statutory authority to adopt TSL1 or TSL2

, then DOE must publish a supplemental IRFA which analyzes significant alternatives. Significant alternatives might include a delayed compliance date for small manufacturers, or other flexibilities DOE believes are permitted under EPCA. If DOE believes

is unab le to adopt any small business flexibilities under EPCA, it should state the basis for that

conclusion clearly in its FRFA.

Conclusion

Small business compliance with DOE’s proposed energy efficiency standard for automatic commercial ice makers will yield very little in the way of energy savings, but will cause significant economic harm. DOE should adopt a standard that is feasible not on ly for large manufacturers, but also for small manufacturers. EPCA gives DOE ample latitude to adopt

standards that will achieve significant energy savings without inflicting serious harm on small business manufacturing. In setting its EPCA policy going fo rward , DOE should consider the cumulative costs and benefits of imposing burdensome standards that reduce small business participation in the manufacturing sector. Please do not hesitate to contact me or my staff at 202

- 205

- 6533 should you have any questi ons.

Sincerely,

Winslow L. Sargeant, Ph.D.

Chief Counsel

Jamie Belcore Saloom

Assistant Chief Counsel

cc: The Honorable Dr. Howard Shelanski Administrator, Office of Information and Regulatory Affairs

12 5 U.S.C. § 603(c).