### DEPARTMENT OF JUSTICE

Antitrust Division

Main Justice Building 950 Pennsylvania Avenue, N.W. Washington , D.C. 20530-0001 (202) 514-2401 / (202) 616-2645 (Fax) E-mail: antitrust@usdoj.gov Web site: http ://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 of Energy Washington, D.C. 20585
Dear Deputy General Counsel Belmar:
I am responding to your November 14, 2006 letters seeking the views of the Attorney General about the potential impact on 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 ("EPCA") 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 

### DEPARTMENT OFJUSTICE

Antitrust Division

Main Justice Building 950 Pennsylvania Avenue, N.W. Washington, D.C. 20530-0001 (202) 514-2401 / (202) 616-2645 (Fax) E-mail: antitrust@usdoj.gov Web site: http://www.usdoj.gov/atr

January 16, 2007

FACSIMILE TRANSMITTAL AND FIRST CLASS MAIL

Warren Belmar, Esq. Deputy General Counsel for EnergyPolicy 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 transformers ("distribution transformers"), and (2) residential furnaces and boilers ("furnaces and boilers"). The EnergyPolicy and ConservationAct ("EPCA") authorizes the Department ofEnergy ("DOE") to establish energy conservation standards for a number ofappliances where DOE determines 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 EnergyPolicy and Conservation Act, 42 U.S.C. §6291, 6295 ("EPCA"), which states that, before the Secretary ofEnergymayprescribe a new or amended energy conservation standard, the Secretary shall ask the Attorney General to make a determination of"the impact ofany lessening ofcompetition

... that is likelyto result from the imposition ofthe standard." 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 § OAO(g). Inconducting its analysis the Antitrust Division examines whether a proposed standard maylessen competition, for example, byplacing certain manufacturers ofa product at
an unjustified competitive disadvantage compared to other manufacturers, orbyinducing avoidable inefficiencies in production ordistribution ofparticularproducts. In addition to harming consumers directly through higherprices, these effects could undercut the ultimate goals ofthe legislation.

Yourrequests 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 NOPRrelatingto 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.

^cting Assistant Attorney General 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. Ourreview regarding distribution transformers and furnaces and boilers has focused upon the standards DOE has proposed adopting; we have not determined the impact on competition ofmore stringent standards than those set forth intheNOPRs.

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 maybe 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 transformers used in industries, such as underground coal mining, where physical conditions limit the size of equipment that canbe effectivelyutilized. We understand manufacturers would notbe able to satisfy the proposed standard without increasing the size (or decreasing the power) ofeach class ofdistribution transformer. 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) orreconfiguring the size and number of each class ofdistribution transformers at each site. Theresulting cost increases could constitute production inefficiencies that could make certain products less competitive. For example, the rule could, byraising the costs ofcertain coal mines, adversely affect production decisions at those mines and potentiallyresult 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 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 safelymeet the proposed standards. Forweatherized gas furnaces, meeting the standard would likelyresult in increased condensation, potentiallyresulting in significant deterioration that wouldjeopardize the safety ofthe product, and, for weatherized gas-fired waterboilers, meeting the standard would make effective carbon dioxide venting more difficult. Anyresulting 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 consider its proposed standards in light ofthese concerns.

Aside from the discussion above, the Division does not otherwise believe the proposed standards would adversely impact competition.



### Yours

# Sin;~l~

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# Bruce~~ cting Assistant Attorney General