Energy Conservation Program for Consumer Products; Central Air Conditioners and Heat Pumps Energy Conservation Standards
Federal RegisterMay 23, 2002
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DEPARTMENT OF ENERGY
Office of Energy Efficiency and Renewable Energy
10 CFR Part 430
[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 of Energy Efficiency and Renewable Energy, Department of Energy.
ACTION:
Final rule.
SUMMARY:
The Department of Energy (DOE) today amends the existing energy conservation standards for central air conditioners and heat pumps by raising the minimum energy efficiency levels by 20 percent for most central air conditioners and heat pumps, with somewhat lower levels for certain space-constrained products. DOE also today withdraws a final rule, published on January 22, 2001, that would have established even higher standards. DOE has determined that the standards in the January 22 final rule, which never became effective, are not economically justified under the Energy Policy and Conservation Act (EPCA). Finally, DOE adopts provisions that clarify the point in time at which DOE's discretion to amend standards becomes limited under EPCA.
DATES:
The final rule amending 10 CFR part 430 published January 22, 2001 (66 FR 7170) is withdrawn as of May 23, 2002. The effective date of the amendments to the Code of Federal Regulations in this rule is August 6, 2002.
ADDRESSES:
You may read copies of the public comments, the Technical Support Document for Energy Efficiency Standards for Consumer Products: Central Air Conditioners and Heat Pumps (TSD), the transcript of the public hearing, workshop transcripts in this proceeding, the petition for reconsideration submitted by the Air-Conditioning and Refrigeration Institute, and other post-promulgation submissions at the DOE Freedom of Information (FOI) Reading Room, U.S. Department of Energy, Forrestal Building, Room 1E-190, 1000 Independence Avenue, SW., Washington, DC 20585, (202-586-3142), between the hours of 9 a.m. and 4 p.m., Monday through Friday, except Federal holidays. You may obtain copies of the TSD and analysis spreadsheets from the Office of Energy 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:
Michael Raymond, U.S. Department of Energy, Office of Energy Efficiency and Renewable Energy, Forrestal Building, EE-41, 1000 Independence Avenue, SW., Washington, DC 20585-0121, (202) 586-0854, e-mail:
michael.raymond@ee.doe.gov,
or Michael Bowers, Esq., U.S. Department of Energy, Office of General Counsel, Forrestal Building, GC-72, 1000 Independence Avenue, SW., Washington, DC 20585, (202) 586-9507, e-mail:
mike.bowers@hq.doe.gov.
SUPPLEMENTARY INFORMATION:
Table of Contents
I. Introduction
II. Rulemaking History
III. Authority of DOE to Reconsider and Withdraw the January 22, 2001 Final Rule and Adopt a 12 SEER Standard for Central Air Conditioners
A. DOE's Analysis of EPCA's Anti-Backsliding Provision
B. Discussion of Public Comments on the Anti-Backsliding Provision
1. Environmental Advocates' Views
2. ARI's Views
IV. Basis for DOE's Decision to Withdraw the January 22, 2001 Final Rule
A. Legal Issues
B. Policy Issues
V. Amended Energy Conservation Standards
A. Overview
1. Central Air Conditioner and Heat Pump Features
2. Consumer Benefits
3. National Benefits
B. Statutory Framework
C. Methodology Used in DOE Analyses
D. General Discussion of DOE's Consideration of Statutory Criteria
1. Technological Feasibility
2. Economic Justification Factors
a. Economic Impact on Manufacturers and Consumers
b. Life-cycle Costs and Rebuttable Presumption
c. Energy Savings
d. Lessening of Utility or Performance of Products
e. Impact of Lessening of Competition
f. Need of the Nation to Conserve Energy
g. Other Factors
VI. Discussion of Comments
A. Impact on Consumers
1. Low-Income Consumers
2. Electricity Prices
3. Installation Costs
4. Manufactured Housing Owners
B. Life-Cycle Cost and Payback Period
1. Product Lifetime
2. Warranty, Maintenance, and Service Costs
3. Markups
4. Energy Use
a. Residential Energy Consumption Survey
b. Rebound Effect
5. Rebuttable Payback Period
C. Shipments/National Energy Savings
1. Shipments Forecasts
2. Heat Rates
3. Fuel Switching
D. Impact on Manufacturers
1. Cumulative Regulatory Burden
2. Financial Burdens Associated with New Efficiency Standards
3. Small Manufacturers
4. Manufacturer Cost Estimates
E. Effect on Competition
F. Effect on Utility or Performance
1. Dehumidification
G. Electric System Reliability/Peak Power
1. Peak Power
2. Reliability
H. Other Issues
1. Minimum EER Requirement
2. TXV Requirement
3. State Exemption From DOE Standards
4. Effective Date
5. Environmental Impacts
6. Employment Impacts
7. Space-Constrained Products
a. Through-the-Wall Products
b. Small Duct, High Velocity Systems
8. Basis for HSPF Level
9. Non-Regulatory Approaches
10. Energy Policy
VII. Analytical Results and Conclusions
A. Overview of Analytical Results
1. General
2. Through-the-Wall Products
3. Small Duct, High Velocity Systems
B. Conclusions Regarding Conventional Products
C. Conclusions Regarding Space-Constrained Products
1. Through-the-Wall Products
2. Small Duct, High Velocity Systems
VIII. 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 the Unfunded Mandates Reform Act of 1995
I. Review Under the Treasury and General Government Appropriations Act, 1999
J. Review Under Executive Order 13211
K. Congressional Notification
I. Introduction
DOE today publishes three final rulemaking determinations with respect to amended central air conditioner and heat pump energy conservation standards under section 325 of the Energy Policy and Conservation Act (42 U.S. Code (U.S.C.) Section 6295). First, for reasons described in detail in Section IV of this Supplementary Information, DOE hereby withdraws the January 22, 2001 final rule that would have established 13 as the mandatory Seasonal Energy Efficiency Rating
(SEER)
1
for most central air conditioners and central air conditioning heat pumps (heat pumps). DOE withdraws the final rule because it: (1) Was promulgated without consulting with the Attorney General on potential anti-competitive effects, (2) contained a material defect in the statement of basis and purpose required by the Administrative Procedure Act (APA), (3) contained an effective date in conflict with the Congressional Review Act's lie-before-the-Congress requirement for major rules, and (4) was based on an assessment of benefits and burdens that resulted in an erroneous conclusion that a 13 SEER standard for both central air conditioners and central air conditioning heat pumps would be economically justified under title III, part B of the Energy Policy and Conservation Act (EPCA) (42 U.S.C. 6291
et seq.
). Second, DOE adopts regulatory provisions that implement section 325(o)(1) of EPCA, including definitions of the statutory terms “maximum allowable energy use” and “minimum required energy efficiency,” and thereby pinpoints the point in time at which DOE's discretion to alter an amended standard becomes limited. The basis for this determination is discussed in Section III of this Supplementary Information. Third, DOE finalizes 12 SEER and 7.4 Heating System Performance Factor (HSPF)
2
as the amended energy conservation standard for most central air conditioners and central air conditioning heat pumps and adopts lower standards for certain space-constrained products. The basis for these determinations is discussed in Sections V through VII of this Supplementary Information
1
The Seasonal Energy Efficiency Ratio or SEER is DOE's measure of energy efficiency for the seasonal cooling performance of central air conditioners and central air conditioning heat pumps.
2
The Heating Seasonal Performance Factor is DOE's measure of energy efficiency for the seasonal heating performance of heat pumps.
II. Rulemaking History
The existing standards for residential central air conditioners and heat pumps were prescribed by the National Appliance Energy Conservation Act of 1987 (NAECA) (Pub. L. 100-12) and have been in effect since 1992. 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 of Proposed Rulemaking (ANOPR) announcing DOE's intention to revise the existing central air conditioner and heat pump efficiency standard pursuant to section 325(d) of EPCA, as amended by NAECA. 58 FR 47326. The fiscal year (FY) 1996 appropriations legislation for DOE imposed a moratorium on proposed and final energy conservation standards. Public Law 104-134. During the moratorium, DOE responded to congressional concern about how the appliance standards program was working by consulting with a broad spectrum of interested persons on possible improvements. As a result, on July 15, 1996, DOE published a new policy on how it would conduct appliance standards rulemaking (61 FR 36974). The new policy, “Procedures for Consideration of New or Revised Energy Conservation Standards for Consumer Products,” is commonly referred to as the Process Improvement Rule and is codified at 10 CFR part 430, subpart C, Appendix A. Under this new policy, DOE presented for comment an analytical framework for the central air conditioner and heat pump standards rulemaking during a workshop on June 30, 1998. The analytical framework described the different analyses that DOE would conduct, the methods for conducting them, the use of new spreadsheets, and the relationship of the various analyses. On November 24, 1999, DOE published a Supplemental ANOPR for central air conditioners and heat pumps and invited additional comment on issues raised following publication of the original ANOPR. 64 FR 66306.
DOE published a notice of proposed rulemaking on October 5, 2000 (October 5, 2000 NOPR). 65 FR 59590. The energy efficiency standards that DOE proposed for residential central air conditioners and 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 to the 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). The proposal of an EER was designed to ensure more efficient operation at high outdoor temperatures, during periods when electricity use by air conditioners is at its peak. A public hearing was held in Washington, D.C. on November 16, 2000, to hear oral views, data and arguments on the proposed rule.
On January 22, 2001, at the close of the Clinton Administration, DOE published a final rule that would have required a SEER of 13 for all classes of central air conditioners, except for “niche” products which were omitted from the rule, and a corresponding HSPF of 7.7 for central air conditioning heat pumps (Final Rule, “Energy Conservation Program for Consumer Products; Central Air Conditioners and Heat Pump Energy Conservation Standards,” 61 FR 7170).
Pursuant to President Bush's Regulatory Review Plan,
3
DOE conducted an internal review of the final, not-yet-effective rules issued under section 325 of EPCA that DOE published at the end of the 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 of these three 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 of economic justification.
3
This Plan was set forth in a memorandum from Assistant to the President and Chief of Staff Andrew H. Card, dated January 20, 2001, and published in the Federal Register on January 24, 2001 (66 FR 7702).
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) and certain manufacturers (with regard to the central air conditioner rule) had filed petitions for review in the United States Court of Appeals for the Fourth Circuit.
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 of and basis for the January 22, 2001 final rule and that the interests of justice therefore dictated that DOE further postpone the rule's effective date in light of the pendency of ARI's petition for judicial 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 rulemaking that would be forthcoming shortly.
On June 19, 2001, the State of New York, several other states, the Natural Resources Defense Council, Consumer Federation of America, and the Public Utility Law Project sued DOE in Federal court challenging its actions delaying the effective date of the January 22 final rule. The cases were consolidated, with the states of California, Connecticut, Vermont, Maine, New Jersey and Nevada joining the lawsuit (
State of New York et al.
v.
Abraham
, 01 Civ. 5499 (LTS) and 01 Civ. 5500(LTS)(SDNY);
4
a petition for review was also filed with the Court of Appeals for the Second Circuit (Docket No. 01-4103).
4
On April 25, 2002, the district court dismissed the consolidated actions on the ground that the court lacked subject matter jurisdiction to consider the matters raised by the plaintiffs.
On July 25, 2001, DOE granted ARI's petition and published a three part supplemental proposal with regard to energy conservation standards for central air conditioners and central air conditioning heat pumps. 66 FR 38822. First, DOE proposed regulatory provisions to clarify that section 325(o)(1), which qualifies DOE's rulemaking authority to prescribe amended energy conservation standards, applies as of an effective date for modifying the Code of Federal Regulations (CFR) set forth in the notice of final 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 proposed to withdraw the January 22 final rule. Third, based on a re-assessment of factual information and analyses already in the record, DOE proposed to determine that elevation of the 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. For product classes other than through-the-wall products, DOE proposed a SEER of 12 with a corresponding HSPF of 7.4 which would apply to products manufactured in 2006. With respect to through-the-wall product classes, DOE proposed somewhat lower standards. DOE conducted a public hearing in Washington, D.C. on October 2, 2001, to hear oral views, data and arguments on the proposed rule.
III. Authority of DOE To Reconsider and Withdraw the January 22, 2001 Final Rule and Adopt a 12 SEER Standard for Central Air Conditioners
The issue of DOE's authority to withdraw the January 22 final rule and propose a 12 SEER standard was first raised in ARI's March 23, 2001 petition for reconsideration (ARI, No. 138) and in a responding letter submitted to Secretary Abraham by various environmental organizations on April 6, 2001 (Alliance to Save Energy (ASE),
et al.,
ASE, No. 183). ARI contended that section 325(o)(1) of EPCA, which prohibits DOE from decreasing the maximum allowable energy use or minimum required energy efficiency of covered products, did not apply to reconsideration of the January 22 final rule because DOE had suspended the effective date of the rule (ARI, No. 138 at p. 3, n. 2). This provision has been referred to in the rulemaking as EPCA's “anti-backsliding provision.” The environmental advocates took a contrary position, arguing that the anti-backsliding provision did apply and, thus, that DOE was precluded from reconsidering the rule and proposing a less stringent standard (ASE
et al.,
No. 183 at p. 5). In the April 20, 2001, notice postponing the effective date of the January 22 final rule, DOE stated its intention to issue a further notice of proposed rulemaking that would propose a 12 SEER/7.4 HSPF standard for central air conditioners and heat pumps, and stated that it would invite public comment on its explanation of the statutory authority to make such a proposal upon reconsideration of the January 22 final rule (66 FR 20101). Subsequently in the notice of supplemental proposed rulemaking published on July 25, 2001 (July 25 SNOPR), DOE included a detailed explanation of its interpretation of section 325(o)(1) of EPCA. We repeat much of the July 25 SNOPR explanation here as a preface to a discussion of public comments received on this issue. (Repeating DOE's analysis of section 325(o)(1) here also will assist readers who otherwise would have to look back at a copy of the July 25 SNOPR.)
A. DOE's Analysis of EPCA's Anti-Backsliding Provision
The starting point for the analysis of DOE's authority to reconsider the January 22 final rule and propose 12 SEER standards is the text of the statute. Section 325(o)(1) of EPCA provides as follows:
The Secretary 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 decreases the minimum required energy efficiency, of a covered product.
42 U.S.C. 6295(o)(1).
The critical term in section 325(o)(1), as it relates to the rulemaking on central air conditioners and heat pumps, 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 efficiency” for central air conditioners and 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 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 the rule set forth) been made applicable only to appliances manufactured on or after January 23, 2006, we think this would be a close question. A reasonable 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. A reasonable 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 of Federal 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 of petitions by ARI for reconsideration and for judicial review.
As a result, the new SEER and HSPF, though set out in a final rule, never in any sense achieved the status of being the “required” “minimum energy efficiency” benchmarks. There has never been a single moment under any
understanding of the word “required” at which any central air conditioner or heat pump, including one manufactured after January 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, we do not see how the publication of a final rule that 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 by the rest of the sentence in section 325(o)(1) of which 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 of the various actions postponing the effective date of the amendments to the standards it proposed, the January 22, 2001 rule never actually effectuated any amendment to the prior standards. Therefore, the standards that DOE proposed 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 standards prescribed by NAECA (SEER of 10.0 and HSPF of 6.8 for split systems manufactured after January 1, 1992, SEER of 9.7 and HSPF of 6.6 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.
Notwithstanding public comments (discussed below), DOE continues to believe the foregoing analysis establishes that EPCA is unambiguous on the question of whether standards that are published in the
Federal Register
, but not yet effective, represent the “minimum required energy efficiency” benchmarks for central air conditioners and heat pumps for purposes of section 325(o)(1). We think it is clear from the statutory text that such standards do not represent the benchmarks for “minimum required energy efficiency.” We also believe that even if the statute were found to be ambiguous, for the reasons set out in the discussion that follows, that would not be the interpretation that we should select as a matter of policy.
If published but not yet effective standards are not the benchmarks for “minimum required energy efficiency” in section 325(o)(1), the question remains whether DOE should construe the term “minimum required energy efficiency” to mean (A) energy efficiency standards that are not yet enforceable against the manufacturers, but that have been prescribed in a final rule amending prior standards, which amendments have been made to the CFR pursuant to an effective date that has passed; or (B) energy efficiency standards that are currently enforceable against the manufacturers if they manufacture and sell a non-compliant product.
DOE believes that alternative (A) is the preferable construction of the term, but only if the effective date selected for the final rule is consistent with other applicable laws and regulations and allows the Secretary an opportunity promptly to correct legal and policy errors that may have been contained in the final rule. If that precondition is satisfied, DOE believes alternative (A) will better advance the relevant statutory and policy considerations underlying section 325(o)(1): To promote greater energy efficiency while providing greater certainty to manufacturers who must plan and make the expenditures necessary to comply with an amended energy conservation standard—which is often a multi-year endeavor with substantial costs. We note that the relative certainty the interpretation set out in alternative (A) produces for manufacturers, which is a key comparative advantage of this interpretation over the competing one, is intimately tied to a proper effective date choice that facilitates prompt error correction, thereby potentially avoiding litigation that would seriously undermine the certainty sought to be achieved.
DOE believes that this resolution of the ambiguities in the statute is consistent with the statute's text, structure, legislative history, and the fundamental policy choices it makes. We believe that on balance this approach better accomplishes the statute's objectives than either adopting alternative (A) without the qualification set out above, thereby establishing a set of procedures that could have the effect of preventing the Secretary, within a short period after publication of a final rule that would modify such standards, from correcting defects in them that come to his attention; or adopting alternative (B), thereby reading the phrase “minimum required energy efficiency” to encompass only energy efficiency standards as of the date upon which manufacturers have to comply with those standards. Although at least the latter approach may well be a permissible interpretation of section 325(o)(1), DOE believes that the view set out in our proposed rule is the better one.
The latter 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 of the phrase. This view, however, is in tension with the rest of the sentence, which, as explained above, suggests that the relevant point of comparison is the standard being amended, regardless of whether manufacturers actually have to comply with it. Moreover, if adopted, 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 of these delays is plainly to give manufacturers a significant amount of time to develop and manufacture new products after a new standard is adopted but before it becomes enforceable. These delays also suggest that a change of standard on the eve of the manufacture of a 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 of establishing a climate of regulatory stability served by these closely related portions of EPCA.
The legislative history of section 325(o)(1), although sparse, also suggests that this interpretation may not be the one best suited to accomplish the statute's objectives. In discussing this provision in the 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 of a covered product. The purpose of this 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 of relative stability with respect to future planning by all interested parties
* * *
House Report No. 100-11 at p. 22 (emphasis added).
This language suggest that section 325(o)(1) was specifically expected, at least in the view of the House Committee, to act harmoniously with the other provisions of EPCA discussed above in facilitating regulatory certainty. The latter purpose is better accomplished 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 as possible under the Administrative Procedure Act (APA). This would likely result in its making such rules effective 30 days after publication. DOE also could refuse to reconsider any aspect of such a rule 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 not be the best way for DOE to promote regulatory certainty either. It is common for agencies to entertain petitions for reconsideration at least for a short period after issuance of a final rule as well as to 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 review before they could be 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, is not the best way to advance the regulatory stability sought by section 325(o)(1) and the other related EPCA provisions discussed above.
With respect to major rules, this approach also would create unnecessary conflict between section 325(o)(1) and the Congressional Review Act (CRA) (5 U.S.C. 801-804) enacted in 1996. Under the 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 of 5 U.S.C. 804(2), the CRA provides for the passing of a 60-calendar-day-lie-before-the-Congress period, after submission of the agency report, at the end of which a final rule could become effective in the absence of a Congressional resolution of disapproval (5 U.S.C. 801(a)(3)). CRA allows for an exception to the 60-day-lie-before requirement only if the President determines that a major rule should take effect before the end of that period because of an imminent health or safety threat or other emergency; because it is necessary to the enforcement of criminal laws or national security; or if it is issued pursuant to a statute implementing an international trade agreement (5 U.S.C. 801(c)).
In DOE's view, this last set of considerations also points the way to the answer to the question of at what time amendments to an energy-efficiency-setting-standard should best be viewed as having set “minimum required energy efficiency” benchmarks. For the reasons explained at the beginning of this section, that time must be after the final rulemaking the amendments to the standard is in effect. But, consistent with the objective of section 325(o)(1) and the other closely related EPCA provisions of promoting regulatory certainty, and to harmonize section 325(o)(1) with common administrative practice and the CRA, such final rules should ordinarily be made effective only after a reasonable hiatus after the date of publication has elapsed, allowing for prompt use of ordinary administrative error correction procedures and completion of congressional 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 to begin. The certainty of the regulatory regime sought to be achieved therefore cannot occur until that time.
Accordingly, DOE believes it should construe section 325(o)(1) as applying to standards designed to set “minimum required energy efficiency” benchmarks at the 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 understanding of when a rule containing such standards has established “require[ments].”
DOE's decision to exercise its discretion to adopt this interpretation of section 325(o)(1) is not meant to intimate a view with respect to or suggest how anti-backsliding provisions in other statutes should be interpreted. Decisions of that type would of course turn on the specific language and policy of those provisions, just as today's decision did here.
Based on this consideration of the meaning of section 325(o)(1), DOE proposed to adopt a series of amendments to the EPCA rules intended to address these general issues. First, it proposed definitions of 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 proposed to include in its definition that to 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 proposed a technical amendment adding a definition of the EPCA term “effective date,” which EPCA, inconsistently with the Office of Federal Register guidance, treats as synonymous with “compliance date.”
B. Discussion of Public Comments on the Anti-Backsliding Provision
DOE's analysis of section 325(o)(1) and related proposals were the subject of comment by the environmental advocates and by ARI. Their comments elaborated upon the basic positions each had taken in connection with ARI's petition for reconsideration. The environmental advocates prefaced their comments with the observation that ultimately the question whether the anti-backsliding provision prevents DOE from withdrawing the January 22 final rule and proposing a 12 SEER standard would likely be resolved in the Federal litigation previously mentioned (
see
“Rulemaking History.”).
1. Environmental Advocates” Views
The environmental advocates, led by the Natural Resources Defense Council (NRDC) and several states, argue that EPCA's anti-backsliding provision applies upon publication of final standards in the
Federal Register
, and that DOE is powerless thereafter to entertain and grant a petition for reconsideration that requests lower
amended standards. (NRDC, No. 250; Attorneys General of New York and Massachusetts, No. 277; State of Vermont, No. 268; Attorney General of California, No. 249).
The NRDC commented that the APA contains no provision for “withdrawing” a final rule, and that if DOE wishes to change the rule, it may propose to “amend, revise or revoke” the rule consistent with the APA. NRDC also states there is no statutory or regulatory provision allowing interested persons to “petition for reconsideration” of a final rule. DOE does not believe these arguments have merit. DOE chose to use the word “withdraw” at the suggestion of staff in the Office of the Federal Register. “Withdraw” is the term that Office uses to describe the action of an agency in pulling back a rule document before it is officially filed and published in the
Federal Register
. (Document Drafting Handbook, Chapter 4, p. 4-2 (Oct. 1998)). The Office of the Federal Register decided that the word “withdraw” also is apt when an agency proposes to rescind a published final rule before it becomes effective, thus pulling it back before it modifies the Code of Federal Regulations. (Document Drafting Handbook, Chapter 2, p. 2-33 (Oct. 1998)). By proposing to withdraw the January 22 final rule and proposing a 12 SEER standard, DOE was proposing actions that, if adopted and implemented in a future final rule, would rescind or repeal the January 22 final rule. This course of action is entirely consistent with the APA. While an agency generally has inherent authority to reconsider its decisions, as the comments of ARI state (ARI, No. 259, at p. 6), the APA specifically gives interested persons the right to petition for rulemaking (5 U.S.C. 553(e)).
NRDC further believes DOE has misconstrued section 325(o)(1) by placing undue weight on the word “required” in the term “minimum required energy efficiency.” (Several state officials submitted comments similar in most respects to the NRDC views summarized here and in the discussion that follows.) NRDC faults DOE for ignoring the terms “maximum allowable energy use” and “maximum water use” in the same provision. All of these terms, NRDC argues, are simply measurements of energy conservation and do not refer in any way to compliance dates or requirements for manufacturers. NRDC, therefore, concludes that the word “require” is ambiguous and that one needs to look to the entire statutory scheme to determine when the anti-backsliding provision applies.
NRDC argues that the key word in section 325(o)(1) is “prescribe,” which it states occurs when a final rule is published in the
Federal Register
, and that it is the act of “prescribing” a final rule that triggers application of the anti-backsliding provision. NRDC finds supports for this interpretation of “prescribe” in section 325(p), which includes publication of a final rule as the last step in the procedure for prescribing a new or amended standard, and in the deadlines for various amendments of product standards that are determined by reference to the date of publication of the previous standard. NRDC also points to House Report language stating that section 325(o)(1) prevents DOE from weakening any energy conservation standard for a product “whether established in this Act or subsequently adopted,” and states that use of the word “adopted” confirms its view that the anti-backsliding provision applies when a rule is published in the
Federal Register
. Thus, under NRDC's interpretation, once DOE published the January 22 final rule, it was powerless to reconsider it and propose a lower energy conservation standard.
DOE agrees that the term “minimum required energy efficiency” is not the only descriptor of energy or water efficiency used in section 325(o)(1), but it is the only descriptor that applies to standards for central air conditioners and heat pumps. That is why DOE's analysis focuses on the word “required.” It is true that for other covered products, the applicable descriptor would be “maximum allowable energy use” or “maximum allowable water use.” For those products, the key word would be “allowable.” But for the same reasons why, as explained in DOE's analysis above, the SEER and HSPF levels set out in the January 22 final rule never in any sense achieved the status of being the “required” “minimum energy efficiency” benchmarks, it is not much easier to see how a rule that never became effective could set “maximum allowable” amounts of water or energy use. At least until a new rule establishing maximum allowable energy or water use became effective, the “maximum allowable energy” or “maximum allowable water use” for a product subject to one of these standards would remain the preexisting standard. Accordingly, today's rule contains definitions of “maximum allowable energy use” and “maximum allowable water use” that parallel the definition of “maximum required energy efficiency” that DOE adopts.
DOE also thinks NRDC's view of the importance of the word “prescribe” in section 325(o)(1) is wrong. The word “prescribe” is nowhere defined in EPCA, but it does not necessarily mean “publication.” For example, section 325(p), concerning the procedure for prescribing any new or amended standard, provides that “[a] final rule prescribing an amended or new energy conservation standard or prescribing no amended or new standard for a type (or class) of covered products shall be published as soon as practicable * * *” 42 U.S.C. 6295(p)(4). The use of the word “prescribe” in the same provision in which the word “publish” is used is a clear indication that Congress may have considered the two words to have different meanings. It is not necessary to resolve the question of the meaning to the word “prescribe” because it begs the critical question of what DOE may not prescribe under section 325(o)(1). With respect to central air conditioners and heat pumps, the what that DOE may not prescribe under section 325(o)(1) is any amended standard “which increases the * * * minimum required energy efficiency” of a central air conditioner or heat pump. We continue to believe that standards in a published rule that have never become effective are in no sense “required” energy efficiency levels, and therefore cannot be the baseline for determining whether the amended standards increase the minimum required energy efficiency.
Finally, DOE disagrees with NRDC's conclusion that the structure and language of EPCA point to the date of publication of amended standards as the time at which section 325(o)(1) applies. More specifically, DOE does not think the statutory intervals for issuance of amended standards, which reference to the date the previous amendment is published, are relevant to the question of when the anti-backsliding provision applies. The fact that Congress required DOE to periodically review and publish amendments to standards does not seem to have any bearing on the question of what point in time standards are required for purposes of section 325(o)(1).
The Attorneys General of the States of New York and Massachusetts attacked the legality of DOE's February 2, 2001, and April 20, 2001, notices delaying the effective date of the January 22 final rule (Attorneys General of New York and Massachusetts, No. 277). In their view, DOE lacked good cause for not proposing the delays for public comment. They dismiss DOE's analysis of, and provisions for, implementing the anti-backsliding provision as a
post hoc
attempt to justify its allegedly illegal
delays of the January 22 final rule. Implicit in their comment is the view that the January 22 final rule actually became effective and, thus, became the required standards for purposes of section 325(o)(1). Based on this understanding of the anti-backsliding provision, the States of New York and Massachusetts consider DOE's action to withdraw the January 22 final rule and adopt 12 SEER standards to be a “rollback” of established standards.
As explained in the February 2, 2001, notice, DOE temporarily delayed the effective date of the January 22 final rule in conjunction with Executive branch wide direction from the Assistant to the President and Chief of Staff. DOE explained that seeking public comment would be impracticable and contrary to the public interest, and further that the imminence of the effective date in the rule constituted good cause for making the temporary delay effective upon publication. 66 FR 8745-46. The further postponement of the effective date on April 20, 2001, was based in part on several reasons why seeking public comment and delaying the effective date of the action were impracticable, unnecessary, and contrary to the public interest. 66 FR 20191. These reasons are not repeated in full here, but DOE explained why in light of ARI's petition for reconsideration and its lawsuit in the Court of Appeals for the Fourth Circuit, DOE concluded there was good cause for further delaying the January 22 final rule's effective date pending consideration of ARI's petition and judicial review. Thus, DOE thinks the short-term delays of the January 22 final rule's effective date to deal with substantial legal questions were lawful, and it rejects the characterization of DOE's proposals as a “rollback” of the energy conservation standards.
The Attorneys General of the States of New York and Massachusetts and the American Council for an Energy-Efficient Economy (ACEEE) argued that choosing an effective date for purposes of section 325(o)(1) other than the date of publication of amended standards would lead to delay and cause uncertainty with respect to when manufacturers must make investments needed to comply with amended standards. (Attorneys General of New York and Massachusetts, No. 277 at p. 9; ACEEE, No. 284 at p. 3). The Northeast Energy Efficiency Partnerships, Inc. (NEEP) argued DOE's proposed approach would give stakeholders another opportunity to try to influence decision makers and would “politicize” the standard setting process. (NEEP, No. 273 at p. 3). As explained above, DOE does not believe section 325(o)(1) can be reasonably interpreted to apply upon the publication of final standards in the
Federal Register
. However, assuming DOE had the discretion to adopt such an interpretation, DOE would not choose the date of publication as the date for purposes of section 325(o)(1). As explained previously, a practice of routinely making published standards effective in the shortest time after publication (normally 30 days after publication under the APA) is not likely to provide greater certainty about the point in time when standards would take effect. If DOE were unable to respond to legitimate requests for reconsideration and correction of errors, then the only avenues available to aggrieved stakeholders would be lawsuits in Federal courts or efforts to obtain a legislative reversal under the CRA. This would not lead to expeditious correction of errors or resolution of issues and would not advance the goal of regulatory certainty. Such a practice also would create needless conflict with the CRA's 60-day lie-before-the-Congress provision for major rules.
2. ARI's Views
ARI agrees with DOE that the existing “minimum required energy efficiency” levels for central air conditioners and heat pumps, which DOE may not lower, are the standards established by NAECA, effective on January 1, 1992 (
i.e.,
10 SEER/6.8 HSPF for split systems and 9.7 SEER/6.6 HSPF for single package systems). However, ARI believes the term “minimum required energy efficiency” should be understood to mean the existing efficiency standard as of the effective date under EPCA,
i.e.,
the date on which the standard is required to be complied with (ARI, No. 259 at p. 19). ARI believes its interpretation would avoid the risk of having the anti-backsliding provision apply unreasonably early, which could prevent DOE from taking appropriate administrative action to correct a promulgated standard or to respond to extraordinarily changed circumstances.
DOE acknowledged in its analysis of section 325(o)(1) that the view that a standard is only covered by the anti-backsliding provision after manufacturers are required to comply with it is an arguable one. This view, however, is in tension with the rest of the sentence, which suggests that the relevant point of comparison is the standard being amended, regardless of whether manufacturers actually have to comply with it. Moreover, by allowing the Secretary to change the energy efficiency standards at any point in time before the compliance date, this view would slight important reliance interests that, as DOE explained in its analysis, are given significant weight by other provisions and the legislative history of EPCA. For these reasons, DOE continues to believe that section 325(o)(1) should be construed as applying to standards designed to set “minimum required energy efficiency” benchmarks at the point in time a final rule containing such a standard becomes effective for purposes of revising the Code of Federal Regulations, as long as the effective date that is selected is consistent with the CRA and any other applicable law. In today's rule, DOE adopts provisions that implement this approach.
ARI stated that if DOE adopted the approach it proposed in the July 25 SNOPR, then it would like the definitions of “minimum required energy efficiency” and “maximum allowable energy use” revised to ensure that DOE has sufficient time to complete any administrative action it takes in response to a petition for reconsideration. ARI recommended adding to each definition the words “or the date on which DOE completes action on any timely-initiated administrative reconsideration, whichever is later.” (ARI, No. 259 at pp. 20-21). We think ARI's suggested language is a useful addition to the definitions. Therefore, we have revised the proposed definitions of “maximum allowable energy use” and “minimum required energy efficiency,” to be added to section 430.2, accordingly. In addition, DOE adds a similar definition of “maximum allowable water use,” which was inadvertently omitted in the July 25 SNOPR.
Under the provisions adopted in today's final rule, DOE will select a date for the “Effective Date” line of the notice of final rulemaking that in most instances will be 60 to 80 days after the date of publication. (DOE has chosen 75 days after the date of publication for the effective date of today's rule.) DOE would expect that any petition for reconsideration, to be considered timely, ordinarily would be submitted to DOE before the effective date specified in the notice of final rulemaking.
DOE did not receive any public comments on the proposed definition of the term “effective date” as used in EPCA and 10 CFR 430.32. This definition clarifies that for purposes of construing the term under EPCA (but not for purposes of determining the point at which amendments to a standard qualify for protection under section 325(o)(1)), the “effective date” is
the date on which an amended energy conservation standard becomes enforceable. DOE also did not receive comments on proposed section 430.34, which tracks the language of section 325(o)(1). Therefore, DOE today adopts these provisions without substantive change.
IV. Basis for DOE's Decision To Withdraw the January 22, 2001, Final Rule
In the July 25 SNOPR, DOE discussed possible legal errors in the promulgation of the January 22 final rule and economic issues that DOE believed had not been adequately considered in determining the energy efficiency levels that are the maximum technologically feasible and economically justified (66 FR 38827-29). On the basis of these possible legal and policy errors, DOE proposed to withdraw the January 22 final rule and proposed to adopt a 12 SEER standard for most central air conditioners and heat pumps, rather than the 13 SEER standard in the January 22 final rule (66 FR 38842). DOE today finally withdraws the January 22 final rule and amends the energy conservation standards for central air conditioners and heat pumps at the 12 SEER level except for two types of space-constrained products (through-the-wall products and small duct, high velocity systems) that are subject to lower standards. In taking this action, DOE corrects the legal and policy errors that were the basis for DOE's decision to withdraw the January 22 final rule.
A. Legal Issues
In the July 25 SNOPR, DOE acknowledged that to comply with section 325(o)(2)(B)(i) of EPCA, DOE arguably should have invited the Department of Justice to submit a supplemental statement of its views on the potential anti-competitive impact of a 13 SEER standard for both central air conditioners and heat pumps which was included in the January 22 final rule (66 FR 38827-28).
Section 325(o)(2)(B)(i) requires DOE to determine whether the benefits of a new or amended energy conservation standard exceed its burdens by considering “to the greatest extent practicable” seven factors, including: “(V) the impact of any lessening of competition, as determined in writing by the Attorney General, that is likely to result from the imposition of the standard” (42 U.S.C. 6295(o)(2)(B)(i)). Section 325(o) also provides that:
For purposes of clause (i)(V), the Attorney General shall make a determination of the impact, if any, of any lessening of competition likely to result from such standard and shall transmit such determination, not later than 60 days after the publication of a proposed rule prescribing or amending an energy conservation standard, in writing to the Secretary, together with an analysis of the nature and extent of such 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 finally prescribed by DOE under section 325(o) of EPCA. Because the Department of Justice must transmit its determination to DOE within 60 days after the publication of a proposed rule, EPCA contemplates that the Department of Justice's determination on the anti-competitive effects of a proposed rule usually will enable DOE to fulfill its substantive obligation to consider the Department's expert opinion on the anti-competitive impact of a final standard. However, as the following discussion shows, this will not always be the case.
DOE submitted the October 5, 2000, NOPR to the Attorney General for review pursuant to the foregoing provisions. The NOPR described the range of potential trial standards considered by DOE, and proposed adoption of Trial Standard Level 3,
i.e.,
a minimum SEER of 12 for central air conditioner product classes and a SEER of 13, with a corresponding HSPF of 7.7, for central air conditioning heat pumps. The Department of Justice, consistent with its past practice, confined its response to the proposed standards, corresponding to Trial Standard Level 3.
The Department of Justice had several concerns about the proposed rule's potential impact on competition (
see
December 4, 2000, letter in the Appendix to this notice). First, the Department of Justice 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 of equipment to 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 heat pumps to other systems that include resistance heat systems, reducing the competition that presently exists between manufacturers of heat pumps and manufacturers of those other heating systems. The Department of Justice urged DOE to 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 on January 22, 2001, that adopted 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. While the preamble to the final rule addressed the Department of Justice's specific concerns about the proposed 12 SEER standards for central air conditioners/13 SEER/7.7 HSPF standard for central air conditioning heat pump systems (66 FR 7192-93), DOE did not have the benefit of the Department of Justice's views on the potential anti-competitive impact of the final 13 SEER standards for both air conditioners and heat pumps. This is particularly of concern in light of information in the TSD indicating that standards at Trial Standard Level 4 (uniform 13 SEER standards) could cause several major manufacturers to consider selling their production assets rather than make the investment required to meet the new standard or face the loss of profits caused by the absence of premium products in the marketplace (
see
July 25 SNOPR at 38827). Therefore, DOE believes the Department of Justice's views on the potential of the standards in the January 22 final rule to accelerate consolidation in the industry should have been obtained.
As part of its review of the January 22 final rule pursuant to the President's Regulatory Review Plan, DOE on March 20, 2001, requested the views of the Department of Justice on the 13 standards for central air conditioners and heat pumps. The Department of Justice's letter responding to our request is published in the Appendix to this notice. While some commenters were critical of the substance of the Department of Justice's determinations about the anti-competitive impact of 13 SEER standards (
see
Section VI below), none of the comments disputed DOE's view that it should have obtained the Department of Justice's views on 13 SEER standards for both central air conditioners and heat pumps.
A second legal error that DOE considered in deciding to propose withdrawal of the January 22 final rule was the absence of any discussion of cumulative regulatory burden in the
statement of basis and purpose for the January 22 final rule. One aspect of the assessment of manufacturer burden required by EPCA (42 U.S.C. 6295(o)(2)(B)(i)(I)) is the cumulative impact of multiple DOE standards and the regulatory actions of other Federal agencies and States that affect the manufacture of a covered product. The preamble to the January 22 final rule contained an assertion that DOE considered cumulative burdens, but it did not discuss the magnitude of the burden or how DOE took it into account in evaluating manufacturer impact (
see
66 FR 7174). In light of the evidence of cumulative regulatory burdens on manufacturers documented in the TSD, DOE thinks the mere assertion that DOE considered the cumulative burdens on manufacturers was not an adequate statement of basis and purpose for DOE's determination on manufacturer impact resulting from a 13 SEER standard.
See
July 25 SNOPR at 38828.
Finally, as explained in DOE's analysis of EPCA's anti-backsliding provision, the effective date included in the January 22 final rule (
i.e.,
the date 30 days after the date of publication of the notice) was in direct conflict with the CRA requirement that a major rule may not take effect until the later of the date occurring 60 days after the date Congress receives the agency's report under 5 U.S.C. 801 or the date the rule is published in the
Federal Register
. 5 U.S.C. 801(a)(3)(A)).
B. Policy Issues
DOE also based its decision to propose withdrawal of the January 22 final rule and to propose 12 SEER standards on its review of the analysis of benefits and burdens that underpinned the January 22 determination that 13 SEER is the maximum efficiency level that is technologically feasible and economically justified. As a result of its review of the January 22 rule, DOE tentatively concluded that a 13 SEER standard was not economically justified, and therefore DOE proposed to withdraw the January 22 final rule and proposed to adopt a 12 SEER standard (66 FR 38828-29).
As explained in the July 25 SNOPR (66 FR 38828) DOE believed that in issuing the January 22 final rule, the previous Administration had given inadequate consideration to the fraction of consumers, and especially low income consumers, who would incur significant increases in life-cycle cost as a result of the 13 SEER standard. DOE decided to propose a 12 SEER standard, instead of 13 SEER, because the analysis showed it would result in a lower fraction of consumers who would incur significant life-cycle cost increases (25 percent and 34 percent of average and low income consumers, respectively, at 12 SEER versus 39 percent and 50 percent, respectively, at 13 SEER).
DOE also based its decision to propose the withdrawal of the January 22 final rule on its conclusion that DOE, in determining whether 13 SEER was economically justified, had not adequately assessed the potential regulatory burden and financial impacts on manufacturers of central air conditioners and heat pumps.
See
July 25 SNOPR at 38828-29. First, DOE concluded that the cumulative regulatory burden on manufacturers was not given sufficient weight in the determination of economic justification. As discussed previously, the statement of basis and purpose for the final rule did not explain how DOE considered the cumulative impact on manufacturers of the costs of complying with various new regulatory actions. DOE also concluded that inadequate consideration was given in the January 22 determination to the effect of 13 SEER standards on industry net cash flow and the maldistribution of regulatory burden on the two major types of manufacturers (66 FR 38829).
DOE's tentative conclusions in the July 25 SNOPR about the appropriate weight to give to the benefits and burdens of 13 SEER versus 12 SEER standards, and the resulting conclusion about which level is economically justified, were the subject of extensive public comment. These comments are discussed in Section VI of this Supplementary Information, and the analysis that supports DOE's determination that 12 SEER is the maximum efficiency level that is technologically feasible and economically justified is set forth in Section VII.
V. Amended Energy Conservation Standards
A. Overview
The amended standards in today's rule take into account a decade of technological advancements and will save consumers and the nation money, significant amounts of energy, and have substantial environmental and economic benefits. When they go into effect, the amended standards will raise the energy efficiency standards to 12 SEER for new central air conditioners and to 12 SEER/7.4 HSPF for new central air conditioning heat pumps. The standards will apply to products manufactured for sale in the United States, as of January 23, 2006. The standard for split-system air conditioners, the most common type of residential air conditioning equipment, represents a 20 percent improvement in energy efficiency. For split-system heat pumps, the new standard represents a 20 percent improvement in cooling efficiency and a 9 percent improvement in heating efficiency. The standard will increase the cooling efficiency of single-package air conditioners and single-package heat pumps by 24 percent and the heating efficiency of single-package heat pumps by 12 percent. DOE has determined that the new standards are the highest efficiency levels that are technologically feasible and economically justified as required by law.
DOE adopts somewhat lower amended standards for through-the-wall central air conditioner and heat pump products to ensure that more efficient versions remain available for this application. DOE establishes 10.9 SEER and 7.1 HSPF as the standard for through-the-wall split systems, and 10.6 SEER and 7.0 HSPF for through-the-wall single package systems.
Finally, DOE creates a new class for small duct, high velocity central air conditioners and heat pumps. These products are designed for retrofit applications and have special requirements that make it unlikely they can meet the efficiency standards that DOE today establishes for conventional equipment. As discussed in Section VI, DOE received public comments that supported creation of a separate class for these products. While DOE includes a definition of “small duct, high velocity system” in the final rule and creates a separate class for them, DOE retains the NAECA prescribed standard levels for small duct, high velocity products in today's final rule because DOE has not yet conducted the analysis required to determine whether higher levels are technologically feasible and economically justified. DOE in the near future intends to begin a rulemaking to determine if a higher standard is warranted.
Several aspects of today's standards warrant highlighting, as follows.
1. Central Air Conditioner and Heat Pump Features
The efficiency levels in today's final rule can be met by central air conditioner and heat pump designs that are already available in the market. DOE fully expects variations of these models to exist under the new standards, offering all the features and utility that are found in currently available products.
2. Consumer Benefits
Table 1 summarizes the “characteristics” of today's typical central air conditioners and heat pumps. Table 2 presents the implications for the average consumer of the standards becoming effective in 2006.
Table 1.—Characteristics of Today's Typical Central Air Conditioners and Heat Pumps
1
Split system air conditioner
Split system heat pump
Single package air conditioner
Single package heat pump
Average Installed Price
$2,236
$3,668
$2,607
$3,599
Annual Utility Bill
2
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
1
“Typical” equipment have cooling and heating efficiencies of 10 SEER and 6.8 HSPF, respectively.
2
Utility bill pertains to the energy cost of operating the air conditioner or heat pump.
Table 2.—Implications of New Standards for the Average Consumer
Split system air conditioner
Split system heat pump
Single package air conditioner
Single package 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 over Equipment Life
113
365
163
421
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 of today'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 standard, DOE estimates that the installed price of a typical air conditioner would be $2,449, an increase of $213.
5
This price increase would be offset by an annual energy savings of about $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 standard, DOE estimates that the installed price of a typical heat pump would be $3,812, an increase of $144.
6
This price increase would be offset by an annual energy savings of about $50 on the utility bills.
5
Based on estimates supplied by the industry trade association, the Air-Conditioning and Refrigeration Institute (ARI), the installed price is estimated to be $2,510, an increase of $274.
6
Based on estimates supplied by ARI, the installed price is estimated to be $3,933, an increase of $265.
DOE recognizes that most consumers pay energy prices that are higher or lower than the “typical” consumer and operate their equipment more or less often. Consequently, DOE has investigated the effects of the different energy prices across the nation and different air-conditioning usage patterns. DOE estimates that 75 percent of all consumers purchasing a new typical air conditioner would either save money or would be negligibly impacted as a result of the 2006 standard.
7
In the case of a new typical heat pump, all consumers either would save money or be negligibly impacted.
8
7
Based on estimates supplied by ARI, 61 percent of all consumers purchasing a new typical air conditioner will either save money or will be negligibly impacted as a result of the 2006 standard.
8
Based on estimates supplied by ARI, 97 percent of all consumers purchasing a new typical heat pump will either save money or will be negligibly impacted as a result of the 2006 standard.
DOE also investigated how these standards might affect low income consumers. On average, DOE estimates that it is likely that low income air conditioner and heat pump consumers would also save money over the life of the equipment as a result of the standard.
3. National Benefits
The standards in today's rule will provide benefits to the nation. DOE estimates the standards will save approximately 3 quads of energy 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 standards will avoid the construction of three 400 megawatt coal-fired plants and nineteen 400 megawatt gas-fired plants. These energy savings would result in cumulative greenhouse gas emission reductions of approximately 24 million metric tons (Mt) of carbon, or an amount equal to that produced by approximately 2 million cars every year. Additionally, air pollution would be reduced by the elimination of approximately 80 thousand metric tons (kt) of nitrous oxides (NO
X
) from 2006 through 2020. In total, DOE estimates this standard will have a net benefit to the nation's consumers of $2 billion over the period 2006 through 2030.
9
9
Net benefit assumes NAECA efficiency scenario. Net benefit would be $3 billion for Roll-up efficiency scenario.
B. Statutory Framework
Part B of Title III of EPCA provides for the Energy Conservation Program for Consumer Products other than Automobiles (42 U.S.C. 6291
et seq.
). The consumer products subject to this program include central air conditioners and heat pumps. Under the Act, the program consists essentially of three parts: testing, labeling, and Federal energy conservation standards.
As previously stated, NAECA prescribed initial Federal energy conservation standards for central air conditioners and heat pumps (42 U.S.C. 6295(d)). NAECA further specified 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 is technologically 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, it must 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 the benefits of the standard exceed its burdens, based, to the greatest extent practicable, on a weighing of the following seven factors:
(i) The economic impact of the standard on the manufacturers and on the consumers of the products subject to such standard;
(ii) The savings in operating costs throughout the estimated average life of the 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 of energy savings likely to result directly from the imposition of the standard;
(iv) Any lessening of the utility or the performance of the covered products likely to result from the imposition of the standard;
(v) The impact of any lessening of competition, as determined in writing by the Attorney General, that is likely to result from the imposition of the 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 of economic justification in instances where the Secretary determines that “the additional cost to the consumer of purchasing a product complying with an energy conservation standard level will be less than three times the value of the energy * * * savings during the first year that the consumer will receive as a result of the 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.
C. Methodology Used in DOE Analyses
For this final rule, the methodologies used to evaluate the seven factors described above are unchanged from those used in the analyses that DOE relied on for the October 5 proposed rule and the January 22 final rule. DOE's methodology is discussed in the October 5, 2000 NOPR (65 FR 59594-97) and the January 22 final rule (66 FR 7173-74). Additionally, the TSD that accompanies this rulemaking provides a detailed description of every aspect of the various analytical methodologies used.
D. General Discussion of DOE's Consideration of Statutory Criteria
1. Technological Feasibility
Pursuant to section 325(p)(2) of EPCA, and as discussed in the October 5, 2000 NOPR (65 FR 59593, 59612) and January 22 final rule (66 FR 7172), 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. The Max Tech Level for heating efficiency is 9.4 HSPF, which is the highest HSPF rating currently available in residential heat pumps. DOE's determinations of technological feasibility for central air conditioners and heat pumps have not been disputed in the written and oral comments of interested persons in the rulemaking.
2. Economic Justification Factors
DOE has considered the seven statutory factors for determining whether a conservation standard is economically justified. This section briefly summarizes DOE's consideration of these factors. More detailed consideration of these factors is provided in the discussion of comments in Section VI and the discussion of analytical results in Section VII of this Supplementary Information.
a. Economic Impact on Manufacturers and Consumers
The record for this rulemaking contains several discussions of the economic impact on manufacturers and consumers
See
66 FR 7174-78, 7185-7191, and 66 FR 38828-29, 38834-35. In the July 25 SNOPR, DOE identified deficiencies in the assessment of manufacturer and consumer impacts that was the basis for adoption of the January 22 final rule. Later sections of this Supplementary Information address the public comments received and DOE's conclusions on these subjects.
b. Life-Cycle Costs and Rebuttable Presumption
DOE considered life-cycle costs, as discussed in the January 22 final rule. 66 FR 7173, 7175, 7187-90. DOE calculated the installed price and operation and maintenance costs for a range of consumers around the nation to estimate the range in life-cycle cost benefits that consumers would expect to receive due to new standards. DOE has made no change in its assumptions and analysis of life-cycle costs in making the determinations in today's notice of final rulemaking.
Section 325(o)(2)(B)(iii) of EPCA provides that if, according to the applicable test procedure, the increase in initial price of an appliance due to a conservation standard would repay itself to the consumer in energy savings in less than three years, then DOE is to presume that such standard is economically justified. This presumption of economic justification can be rebutted upon a proper showing.
Using the reverse engineering manufacturing costs, the standards DOE adopts today for split heat pumps and packaged heat pumps can be shown to have satisfied the rebuttable presumption requirements in section 325(o)(2)(B)(iii).
10
Therefore, DOE presumes that the standards adopted for split system and single package heat pumps are economically justified. The analysis, however, shows that split system air conditioners and single package air conditioners do not meet the standard for use of the rebuttable presumption of economic justification. Therefore, DOE does not presume them to be economically justified. If the rebuttable presumption does not apply, DOE must perform additional analysis to determine economic justification. As discussed in Section VII, DOE has performed an analysis for all classes of central air conditioner and heat pump products that shows the standards in today's rule are indeed economically justified.
10
To avoid confusion, DOE points out that the statute requires DOE to use “the applicable test procedure” to calculate the payback periods for purposes of the rebuttable presumption. As explained in the October 5, 2000 NOPR (65 FR 59596), 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 on the 1997 Residential Energy Consumption Survey, used in other DOE analyses. For this reason, the payback periods presented in Section VII of this portion of the preamble, entitled “Analytical Results and Conclusions,” are significantly longer than those calculated to determine whether the rebuttable presumption applies to these products.
c. Energy Savings
EPCA requires DOE, in determining the economic justification of a standard, to consider the total projected energy savings that are expected to result directly from revised standards. DOE forecasted energy savings through the use of a 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 of the NES that would result from implementation of today's standards.
As discussed in the October 5, 2000 NOPR, section 325(o)(3)(B) of EPCA prohibits DOE from adopting a standard for a product if that standard would not result in “significant” energy savings. The energy savings for the standard levels DOE is adopting today are non-trivial—indeed they are substantial—and therefore we consider them “significant” within the meaning of
section 325 of the Act as construed by the court in
Natural Resources Defense Council
v.
Herrington
, 768 F.2d 1355 (D.C. Cir. 1985).
d. Lessening of Utility or Performance of Products
This factor cannot be quantified. In establishing classes of products, DOE has attempted to eliminate any degradation of utility or performance in the products covered by today's rule. Attributes that affect utility include the product's ability to cool and dehumidify. In some applications, noise levels may also be an aspect of utility. Product size or configuration can also be considered utility if a change in size would cause the consumer to install the product in a location or in a manner inconsistent with the consumer's preferences. The separate treatment of through-the-wall products and small duct, high velocity systems in today's rule is based in part on utility and performance considerations.
e. Impact of Lessening of Competition
This economic justification factor has two aspects: On the one hand, it assumes that there could be some lessening of competition as a result of standards; on the other hand, it directs the Attorney General to gauge the impact, if any, of that effect and DOE must consider the Attorney General's views in determining whether an efficiency level is economically justified.
In order to assist the Attorney General in making such a determination, DOE provided the Attorney General with copies of the October 5, 2000, NOPR and the TSD for review. The Attorney General's determination, in a letter dated December 4, 2000, was discussed in the preamble to the January 22 final rule. 66 FR 7176, 7199-200. The Attorney General's December 4, 2000, determination is included in the Appendix to this notice of final rulemaking.
During the review conducted pursuant to the President's Regulatory Review Plan, DOE invited the Attorney General to submit supplemental views on the January 22 final rule. The Department of Justice, in a letter dated April 5, 2001, provided comments on whether the final rule effectively removed its concerns regarding possible lessening of competition that could result from the October 5 proposed standards. The Department of Justice's April 5, 2001, letter is also included in the Appendix to this notice. The Department of Justice concluded that the 13 SEER standards for heat pumps and air conditioners in the January 22 final rule still presented anti-competitive concerns. More specifically, the Department of Justice concluded that while the final rule's exclusion of niche products might alleviate competitive problems for manufacturers of those products, the Department of Justice remained concerned about the impact of the final rule on manufacturers of standard equipment who could not make 13 SEER equipment that would fit into space-constrained sites. The Department of Justice also concluded the January 22 final rule would have a disproportionate impact on smaller manufacturers of heat pumps. Finally, the Department of Justice was of the view that the 13 SEER standard for air conditioners presents the same kinds of anti-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.
DOE submitted the July 25, 2001, supplemental proposed rule to the Department of Justice for comment. The Assistant Attorney General, Antitrust Division, responded in a letter dated October 19, 2001, (
see
Appendix to this notice) that the Department of Justice had concluded that the proposed 12 SEER standards would not adversely affect competition. This factor is discussed further in Section VI.E of this Supplementary Information.
f. Need of the Nation To Conserve Energy
DOE 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 the environmental impacts of energy production. As part of the analysis supporting today's rule, DOE estimated energy savings and the national consumer benefits and estimated reduction in emissions of pollutants and greenhouse gases resulting from those energy savings.
See
the October 5, 2000 NOPR for a qualitative discussion of how these standards affect energy savings and those benefits. 65 FR 59622-3. The amount of energy savings ultimately associated with a particular standard level is also affected by the effect of a given standard on competition and consumer cost. Selecting a standard level should take into account manufacturer—and therefore inevitably consumer—costs, in order to encourage robust competition and heightened introduction of newer, more efficient units into the inventory of units available for purchase and use by consumers.
g. Other Factors
Section 325(o) of EPCA allows the Secretary of Energy, in determining whether a standard is economically justified, to consider any other factors that the Secretary deems to be relevant (42 U.S.C. 6295(o)(2)(B)(i)(VI)). Under this provision, DOE considered the potential improvement to the reliability of the electrical system and health effects caused by foregone air conditioner purchases. These issues are discussed in the October 5, 2000 NOPR (65 FR 59605); the January 22 final rule (66 FR 7195); and in the Discussion of Comments that follows. The Utility Impacts Analysis in Chapter 11 of the TSD describes the technical analysis used in estimating the effects of adopting new efficiency standards on installed generation capacity. As will be described in the Discussion of Comments, the Utility Impacts Analysis has been revised. Updated results are provided in Appendix M of the TSD.
VI. Discussion of Comments
A. Impact on Consumers
The record for this rulemaking includes numerous discussions of the distributions, extent, and type of burdens on the typical consumer as well as on low-income consumers.
See
65 FR 59623-59624, 66 FR 7189-7190, and 66 FR 38834. In the January 22 notice of final rulemaking, DOE determined that most consumers, including low-income consumers, would likely benefit financially over the life of the equipment, but that all consumers would bear higher initial costs, and 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. Upon review undertaken in conjunction with President Bush's Regulatory Review Plan, DOE focused on analytical results showing that the benefits of the standards adopted in the January 22 final rule would accrue to a much smaller fraction of consumers, particularly low-income consumers, than is the case for recent standards for other products. Therefore, DOE sought to mitigate those burdens by proposing on July 25 a 12 SEER standard, which would reduce the increase in equipment cost compared to the 13 SEER requirements issued on January 22.
See
July 25 SNOPR, 66 FR 38828, 38834. DOE received extensive public
comments on this subject in response to the July 25 SNOPR.
1. Low-Income Consumers
As stated in the July 25 SNOPR, DOE 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 of greater concern at more stringent efficiency standards because increases in first cost and increases in life cycle costs are felt more sharply by lower income consumers.
Many advocates of a 13 SEER standard argued that because a majority of low-income central air conditioner and heat pump consumers are renters, most would not bear the first cost increases associated with more efficient equipment. These comments asserted that landlords would have to absorb any first cost increase because rental prices are dictated by housing availability, real estate prices, and a number of other market forces as opposed to first cost increases in any single appliance. The comments also asserted that because landlords typically purchase the least expensive, and in turn, the least efficient equipment, stringent efficiency standards are one of the few options provided to renters to protect them from unduly high energy bills. (ACEEE, No. 284 at p. 3; Appliance Standards Awareness Project (ASAP), No. 244 at pp. 1-2; Austin Energy, No. 243 at p. 2; Consumer Federation of America (CFA), No. 246 at p. 2; NEEP, No. 273 at p. 3; State of Vermont, No. 268 at p. 3; Goodman Global Holdings (Goodman), No. 269 at p. 4; ASE, No. 282 at p. 4; California Energy Commission (CEC), No. 263 at p. 2; NRDC, No. 250 at pp. 17-18; Environmental Ministries of Southern California, No. 263 at p. 4; Texas Ratepayers' Organization to Save Energy (Texas ROSE), No. 241-SS at pp. 15-16; National Consumer Law Center (NCLC), No. 241-NN at p. 1; Texas Natural Resource Conservation Commission (TNRCC), No. 286 at pp. 1-2; American Geothermal DX, No. 241-HH at p. 1; EPA, No. 276 at p. 5). Goodman, Oregon Office of Energy (OOE), National Grid, and Texas ROSE stated that low-income consumers in general would benefit from stringent efficiency standards. Goodman argued that any first cost increase would be made up through lower energy bills, while Texas ROSE asserted that the stringency of the efficiency standard is immaterial as most low-income households would find buying a new central air conditioning unit a prohibitive expense at any efficiency level. (OOE, No. 275 at pp. 4-5; Goodman, No. 269 at p. 4; National Grid, No. 241-OO at p. 2; Texas ROSE, No. 241-SS at pp. 12-16).
Countering the above comments, York International (York), Trane Company and American Standard Heating and Air Conditioning (Trane), Southern Company, ARI, Edison Electric Institute (EEI), Rheem Manufacturing (Rheem), Carrier Corporation (Carrier), and George Mason University Mercatus Center (Mercatus Center) all argued that the increased cost of more efficient air-conditioning equipment cannot be afforded by those consumers living on fixed or low incomes. For those low-income consumers that are elderly or of ill-health, Carrier and Mercatus Center stated that the increased first cost associated with more efficient equipment could cause these consumers to forego the purchase of new equipment leading to potential adverse health effects for this sub-population. With regard to low-income renters, both Trane and Southern Company maintained that landlords will pass on the higher first costs associated with more efficient equipment to renters. Southern Company elaborated by stating the “renters get it free” argument only has validity in the very short-term. In the long term, higher costs experienced by landlords will inevitably result in higher costs to their tenants. Southern Company asserts that DOE would be better served looking at cost-effectiveness from a direct-cost, societal viewpoint, and avoid speculating on changes in landlord profit margins decades from now. (York, No. 270 at pp. 2-3; Trane, No. 262 at pp. 4-5; Southern Company, No. 257 at p. 2; ARI, No. 259 at p. 2; EEI, No. 253 at p. 4; Rheem, No. 248 at p. 2; Carrier, No. 280 at p. 2; Mercatus Center, No. 242 at p. 11).
DOE believes roughly half of low income households are renters. The 1997 Residential Energy Consumption Survey (RECS) that was used as the basis for determining the impacts of increased efficiency standards on households estimates that 49.8 percent of low-income households with central air-conditioners or heat pumps are renters. What is at issue is the extent to which increased equipment costs will be borne by occupants of these households or by the building owners.
DOE examined existing literature on the economics of rental markets to determine whether any previous analyses might help resolve the disagreements on this issue.
11
The literature provides expressions for determining the renter and landlord pass-through-fractions as a function of elasticities for long-run housing supply and demand. The renter pass-through-fraction defines that portion of a landlord's investment cost (such as the cost associated with more efficient air-conditioning equipment) that gets passed through to the renter in the form of an increased rental price. The renter pass-through-fraction is defined by the following expression:
11
Pindykck, R. and D. Rubinfeld, Microeconomic Theory, 2001, provides equations for renter and landlord pass-through fractions as a function of elasticities for long-run housing supply and demand. Typical supply elasticities can be found in Pindykck, R. and D. Rubinfeld, Microeconomics, 2001, Prentice Hall (citing de Leeuw, F. and N. Ekanen, “The Supply of Rental Housing”, AER, Vol. 61, 1971, pp. 806-817). Typical demand elasticities can be found in Hanushek, E.A. and J.M. Quigley, “The Determinants of Housing Demand”, Research in Urban Economics, Vol. 2, 1982, pp. 221-242.
Where,
ER23MY02.000
e
s
= elasticity of long-run housing supply and
e
d
= elasticity of long-run housing demand.
The landlord pass-through-fraction defines that portion of a renter's benefit due to a landlord's investment (such as utility bill savings associated with more efficient air-conditioning equipment) that get passed back through to the landlord in the form of an increased rental price. The landlord pass-through-fraction is defined by the following expression:
ER23MY02.001
The existing literature provides a range of elasticities for long-run housing supply (0.3 to 0.7) and demand (−0.1 to −1.0). The literature suggests that there will always be some form of renter pass-though but not necessarily some form of landlord pass-through. As a result, the minimum and maximum pass-through-fractions are 23 percent and 121 percent, respectively, of a landlord's investment cost. As shown above, the literature suggests that it is possible that some landlords will not be able to pass on all investment costs, while other landlords may actually pass on more than 100 percent of these costs. Those landlords who are unable to pass on all of these added costs will, of course, be adversely affected by this rulemaking (unless they are directly responsible for the utility bills associated with air conditioning use), although their renters are much more likely to benefit. Landlords that would be adversely
affected may be more likely to seek alternatives, such as small capacity units or even delayed replacement of failed units. Those landlords that pass on more than 100 percent of the costs of new equipment could benefit from efficiency standards, but their renters are much more likely to be adversely affected. Since no study could be found that addressed the specific population of renters likely to be affected by this rulemaking, DOE believes there is insufficient basis to change its analytical methods or conclusions regarding the likely effects of central air conditioner and heat pump standards on low-income renters.
2. Electricity Prices
In proposing a 12 SEER standard in the July 25 SNOPR, DOE stated that a lower fraction of consumers would be negatively impacted in terms of life-cycle cost than under a 13 SEER standard.
See
66 FR 28828.
Several comments disagreed with DOE's life-cycle cost conclusions, claiming that DOE's analysis significantly underestimates the benefits of the 13 SEER rule due to its failure to account for recent increases in electricity prices. The comments note that DOE based its seasonal price forecasts on electricity price data from 1996-97 that were adjusted downward using Energy Information Administration (EIA) projections of future annual electricity prices. Citing recent residential rate data from areas of the country that have undergone some form of electricity deregulation (e.g., Massachusetts, California, and the Northwest), the comments assert that DOE's electricity cost projections fail to recognize the significant summertime consumer price increases that are accompanying restructuring of the electric utility industry. For additional support, some comments refer to an analysis conducted by Synapse Energy Economics that demonstrated that summer daytime wholesale electric prices across the country averaged approximately 2
1/2
¢/kWh (kilowatt-hour) more than annual average wholesale prices. These comments conclude that if DOE's analysis were revised to include more recent electricity prices, the results would indicate that a 13 SEER standard represents a better choice for consumers and the Nation. (ACEEE, No. 284 at pp. 8-11; CFA, No. 246 at p. 2; Attorneys General of New York and Massachusetts, No. 277 at pp. 15-16; OOE, No. 275 at p. 3; Pacific Gas & Electric Company (PG&E), No. 274 at pp. 1-2; ASE, No. 282 at p. 4; Goodman, No. 269 at p. 2; National Rural Electric Cooperative Association (NRECA), No. 278 at pp. 1-2; Environmental Ministries of Southern California, No. 236 at pp. 2-3; Texas ROSE, No. 241-SS at pp. 7-8; NCLC, No. 255 at pp. 2-4; Northwest Power Planning Council (NWPPC), No. 287 at pp. 1-3; Environmental Protection Agency (EPA), No. 276 at p. 4). Some comments further argue that the costs of electricity price increases due to air-conditioning are passed, in the form of higher rates, onto all consumers for all end uses, regardless of the importance of their role in creating the price increase. Thus, DOE's analysis should account for how lower air-conditioning consumption lowers electricity bills for all consumers and not only those that utilize air conditioners. (NEEP, No. 273 at pp. 2-3; NRDC, No. 250 at pp. 14-17).
Trane, ARI, and EEI all disagree that recent price increases due to electricity deregulation will lead to higher electricity rates in the long-term. For example, Trane asserts that competition will cause energy prices to consumers to remain stable. EEI adds that price collapses have recently occurred in some of the same regional markets which experienced rate increases. EEI also states that retail price caps have been instituted in many areas of the country that have been deregulated in order to shield residential consumers from the price fluctuations in the wholesale market. (Trane, No. 262 at pp. 14-16; ARI, No. 259 at pp. 33-34; EEI, No. 253 at p. 3).
Rather than speculate on how current volatility in energy markets will impact future electricity prices, DOE has consistently relied on EIA energy price forecasts and has used other forecasts, including the various EIA scenarios, to bound the energy prices used in the standards analysis. EIA's most recent Annual Energy Outlook (AEO) for the year 2002 recognizes that over the past year energy markets have been extremely volatile.
12
Recent energy market volatility as well as the economic slowdown and lower prices following the September 2001 terrorists' attacks in the United States have been incorporated in the short-term projections of the AEO2002. To be more specific regarding the AEO2002 assumptions, its projections assume a transition to full competitive pricing of electricity in States with specific deregulation plans. Other States are assumed to continue cost-of-service pricing. Price projections include the contracts entered into by California to guarantee electricity supplies in the State. Increased competition in electricity markets is also represented through changes in the financial structure of the industry and efficiency and operating improvement. The impact of EIA's assumptions are evidenced from the average residential electricity price estimated by AEO2002 for the year 2001. The average rate estimated by AEO2002 for 2001 is 4.2 percent greater (or 0.3 ¢/kWh) than that estimated by the AEO2000. Although the AEO2002 short-term projections have taken into account recent events, EIA estimates that long-term volatility in energy markets will not occur from recent events or from the impacts of such future events as supply disruptions or severe weather. Again, this is evidenced from the average residential electricity price forecasts from the AEO2002. Starting in the year 2003 average rates are projected to drop below those forecasted by the AEO2000 and remain that way until 2010. After 2010 the rates forecasted by both the AEO2002 and AEO2000 are essentially the same. In terms of the consumer analysis, this means that the life-cycle results based on the AEO2000 price projections would remain virtually unchanged if the AEO2002 projections were to be substituted in their place.
12
U.S. Department of Energy-Energy Information Administration (EIA), Early Release of the Annual Energy Outlook 2002. EIA website: <http:www.eia.doe.gov/oiaf/aeo/>.
With regard to Synapse Energy Economics' wholesale electricity price analysis, DOE does recognize that wholesale summertime electricity prices are on average 2
1/2
¢/kWh greater than average wholesale rates. But as was stated in the January 22 final rule, DOE cannot speculate as to how wholesale prices will be translated into retail prices to residential consumers. It is possible that this difference in wholesale rates will ultimately result in higher marginal energy prices for the operation of central air conditioners. However, several other assumptions about future electricity prices are equally reasonable. It is possible that increased competition will result in higher fixed charges for utility service and higher fixed charges would lower marginal rates. That is, under competition, utilities may recover more of their costs of supplying electricity to consumers from fixed charges on utility bills, thereby reducing the cost consumers have to pay for electricity being supplied at the margin. It is also possible that higher peak load prices for electricity would cause consumers to significantly alter the times at which they use air conditioning, thus reducing projected electricity costs (and cost savings). Finally, it is possible that the
recent trend toward increased retail level competition will slow or even stop. DOE recognizes that the Nation's electric utility systems are in the midst of major regulatory, structural and technological changes which are likely to have important effects on the marginal prices for electricity use that are charged to residential customers and that these effects may be particularly pronounced during periods of especially high (or low) electricity demand. However, given the many possible scenarios affecting the costs of operating central air conditioners, DOE has decided to retain for this rulemaking the existing method for estimating future marginal electricity prices. This analysis method utilizes the most current, comprehensive data available on the actual marginal rates paid by consumers and uses price forecasts that closely parallel the most current assessment published by DOE.
During the coming years, DOE intends to monitor carefully the actual changes in the marginal electricity rates being paid by consumers and other electricity users, and to look for any trends in these changes that could help improve DOE's analysis. For future efficiency standards rulemakings, DOE intends to use the most recent data available on marginal rates, considering emerging trends in such rates that result from significant changes in electricity rate design (such as fixed and variable charges, or time-of-use rates), metering and demand management technologies, equipment use load shapes, or in the allocations of costs among sectors.
Within approximately five years of the current rulemaking, DOE expects to complete another review of the efficiency standards for central air conditioners and heat pumps. During this period DOE hopes that sufficient data will become available to enable it to forecast with greater confidence the marginal rates for residential electricity users. If available, DOE expects to use such rates to support modified standards.
3. Installation Costs
The potential increase in installation costs associated with 13 SEER equipment was cited by DOE as one of the reasons for not proposing a 13 SEER standard in its July 25 SNOPR.
See
66 FR 38836. Several comments disagreed with DOE's conclusion that installation costs could be significantly different between 12 and 13 SEER equipment. Goodman claims that because their 12 and 13 SEER equipment are similar in size, there is almost no difference in the installation costs associated with their 12 and 13 SEER systems. (Goodman, No. 269 at p. 3). American Geothermal DX, an HVAC contractor, asserts that, based on its experience, any cost difference between installing a 13 SEER unit over a 12 SEER unit would be minimal. (American Geothermal DX, No. 241-HH at pp. 1-2). Several other comments, in particular those from ACEEE, assert that DOE's treatment of the “footprint” issue is speculative,
i.e.,
DOE provides no evidence that installation costs will actually increase for 13 SEER equipment. With regard to space-constrained equipment, ACEEE adds that because DOE has already moved to isolate this type of equipment as separate product classes, it effectively dismisses any arguments asserting that the impact of space constraints would result in higher installation costs for “mainstream” 13 SEER equipment. (ACEEE, No. 284 at pp. 13-14; ASE, No. 282 at p. 5; NRDC, No. 250 at p. 23; National Grid, No. 241-OO at p. 2).
Trane, ARI, and Rheem all argue that 13 SEER equipment is significantly larger than 12 SEER systems. As a result, installation costs are significantly greater for 13 SEER units than for 12 SEER units. In particular, they state there will be many instances where it will be very difficult to physically fit larger indoor coils, needed to match outdoor 13 SEER condensing units, without retrofitting the air handler originally designed for a smaller, lower SEER indoor coil. (ARI, No. 259 at pp. 25-26; Trane, No. 262 at pp. 5-9; Rheem, No. 248 at p. 3).
Throughout the analysis DOE has assumed that installation costs would remain constant as efficiency increased. As stated in the January 22 final rule, DOE believes that even if installation costs do generally rise as the size and weight of equipment increases, manufacturers will have the incentive under new standards to reduce the size of 13 SEER equipment using various approaches, such as adopting variable speed and modulating capacity technologies, converting to microchannel heat exchangers, increasing the size of the unconstrained outdoor unit or indoor unit only, or changing the footprint or elevation of the unit.
See
January 22 final rule, 66 FR 7180. Although DOE still maintains that installation costs generally are unlikely to increase due to the above reason, as stated in the July 25 SNOPR, there is the possibility that substantial increases in installation costs due to larger and heavier 13 SEER systems may materialize for some consumers, especially for those replacing 10 SEER systems.
See
July 25 SNOPR, 66 FR 38836. As a result, DOE continues to believe the possibility of increased installation costs is a factor that supports adopting the less costly 12 SEER standard.
4. Manufactured Housing Owners
York, ARI, and Nordyne Inc. (Nordyne) stated that consumers living in manufactured homes are especially vulnerable to the increased first costs associated with more efficient equipment. They asserted that manufactured homes are typically “starter” homes for low-to-middle income families where any increases in household expenses, including those associated with more efficient space-conditioning equipment, are difficult to afford. Because the life-cycle cost analysis made no explicit mention of this sub-population, they are concerned that DOE did not consider manufactured-home owners in its analysis. (York, No. 270 at pp. 2-3; ARI, No. 259 at p. 9; Nordyne, No. 264 at pp. 1-2).
DOE considered all household types utilizing central air conditioners or heat pumps in its consumer life-cycle cost analysis, including manufactured homes. Of the households with central air conditioners analyzed in the consumer life-cycle analysis, 4.5 percent were manufactured homes. For households with heat pumps, 6.1 percent were manufactured homes.
In its decision to propose 12 SEER standards for conventional products, DOE took into consideration the first cost impacts of higher efficiency standards to manufactured home owners. In particular, DOE was concerned that the 13 SEER standards issued in the January 22 final rule could cause manufactured home consumers to shift from heat pumps to other systems that include resistance heat systems.
See
July 25 SNOPR, 66 FR 38836.
B. Life-Cycle Cost and Payback Period
Although a majority of the comments concerning consumer impacts addressed either low-income impacts or the effect that electricity prices have on the number of consumers either benefitting or being burdened by increased standards, several comments expressed concerns over other elements of the consumer life-cycle cost analysis.
1. Product Lifetime
Energy Market & Policy Analysis, Inc. (EMPA) stated that DOE incorrectly used estimates of the full lifetime of the equipment rather than the time that the equipment may remain in the ownership and use of the initial owner. (EMPA, No. 241-LL at pp. 5-6).
In analyzing increases in efficiency standards, DOE is required by section
325(o)(2)(B)(i) of EPCA to use the full lifetime of the equipment for establishing the operating cost savings resulting from higher efficiency standards. The second factor in section 325 to be considered for determining whether the benefits of the standard exceed its burdens is “the savings in operating costs throughout the estimated average life of the 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.” 42 U.S.C, 6295(o)(2)(B)(i)(II).
A retirement function with an average 18.4-year equipment lifetime was used in the life-cycle cost analysis for central air conditioners and heat pumps. As stated in the January 22 final rule, the basis of the 18.4-year equipment lifetime was a survey conducted on more than 2,100 heat pumps in a seven state region of the U.S.
13
See
66 FR 7179-7180.
13
Bucher, M.E., Grastataro, C.M., and Coleman, W.R. “Heat Pump Life and Compressor Longevity in Diverse Climates.” ASHRAE Transactions, 1990. 96(1): pp. 1567-1571.
The survey determined not only the lifetime of a complete heat pump system, but the life of the original compressor as well. Although the system lifetime is on average over 18 years, the survey also showed that the original compressor lifetime was, on average, 14 years. Thus, the survey indicated that essentially all heat pump owners replaced their original compressor once in the lifetime of system.
Since the heat pump survey clearly indicates that the original compressor is replaced once in a system's life, DOE's analysis was based on the inclusion of a repair cost for the compressor. Conducting the analysis in this manner retains the average system lifetime of 18.4 years but explicitly addresses the replacement cost of the compressor, which is the most expensive component of a system. As indicated by the survey data, the compressor was assumed to be replaced in the 14th year of the system's life. Although a shorter equipment lifetime is possible, DOE has not been provided with more substantive data to support discontinuing its use of the above mentioned survey data. DOE believes that the survey data provides an accurate representation of central air conditioner and heat pump life. Although the survey was conducted only on heat pumps, the retirement function was also used as the basis for estimating central air conditioner product lifetime. Because heat pumps are used during both the cooling and heating seasons, they generally incur more operating hours and more wear during the course of a year than air conditioners. Thus, the use of a heat pump retirement function for air conditioners likely underestimates their lifetime. Although heat pump and air conditioner lifetimes likely differ, DOE was unable to obtain any well substantiated data to determine whether air conditioner lifetimes are longer than those for heat pumps. Without such data, the heat pump retirement function was assumed valid for air conditioners.
2. Warranty, Maintenance, and Service Costs
EMPA stated that DOE made no attempt to collect or include warranty, maintenance, and service costs in the consumer analysis. (EMPA, No. 241-LL at pp. 5-6). On the issue of warranty costs, Mercatus Center adds that the reliability patterns of new components that are part of high efficiency products are less known, so warranty accruals may be significantly higher for these products (
i.e.,
12 to 13 SEER equipment). (Mercatus Center, No. 242 at p. 8).
With regard to maintenance and service (or repair) costs, DOE did collect data or make reasonable assumptions to establish both types of costs.
Maintenance costs are costs to the consumer of maintaining equipment operation such as checking and maintaining refrigerant charge levels and cleaning heat exchanger coils. For the life-cycle cost analysis, maintenance costs were based on data from Service Experts, an HVAC service company.
See
TSD, Chapter 5. Maintenance costs were assumed not to change with increased efficiency, the rationale being that the general maintenance of more efficient products would not be impacted by the more sophisticated components that they contain.
Service or repair costs are costs to the consumer for replacing or repairing components which have failed. For baseline equipment (
i.e.,
10 SEER) and equipment with efficiencies greater than 13 SEER, annualized repair costs were assumed to equal one-half the equipment price divided by the average lifetime (18.4 years). Equipment with efficiencies of 11 through 13 SEER were assumed to incur a one percent increase in repair cost over the baseline level. Because systems with efficiencies up to and including 13 SEER generally do not include sophisticated electronic components, repair costs were assumed to remain essentially flat from 10 to 13 SEER. As noted above in the discussion of equipment lifetime, compressor replacement costs were also included in the analysis.
With regard to warranty costs, these costs were essentially considered by incorporating repair costs into the analysis. As noted above, a product that is less reliable or contains more expensive components was assumed to have a higher cost of repair over its lifetime. As stated in the October 5, 2000 NOPR, either the consumer or the warranty provider will bear that added cost directly through more frequent service calls or higher repair costs.
See
65 FR 59599-59600. If the cost is covered by warranty, however, the warranty provider passes it back to future warranty holders in the form of slightly higher warranty prices. DOE believes the incremental increase in the price of the warranty is equal to, or just slightly higher, than the discounted present value of the incremental repair costs over the life of the warranty. Over the long term then, the average consumer always incurs higher repair costs, either directly or through higher warranty prices. Since the life-cycle cost analysis considers the present value of consumer life cycle costs on the average consumer, incremental repair costs and incremental warranty costs are the same, and interchangeable.
3. Markups
ARI, Trane, and York all believe that DOE greatly underestimated the manufacturer, distributor, and contractor markups used to derive consumer purchase prices. ARI maintains that the manufacturer markup should be approximately 1.35, as verified by a survey ARI conducted in the fall of 2000. Furthermore, ARI continues to believe that the distributor and contractor markups should be approximately 1.37, as determined by DOE in the 1999 Supplemental Advance Notice of Proposed Rulemaking (SANOPR). (ARI, No. 259 at pp. 23-25; Trane, No. 262 at pp. 10-11; York, No. 270 at p. 3).
As stated in the January 22 final rule, DOE did assume for the Manufacturer Impact Analysis that markups increase with increasing efficiency under a given standard level. However, for the consumer economic analyses, as the minimum standard level increases, DOE determined that the distributor and contractor markups on more efficient products do decrease.
See
January 22 final rule, 66 FR 7180.
DOE's analysis of distributor cost data revealed a measurable difference between the average aggregate markup on the entire set of direct business costs and the incremental markup on only
direct equipment costs. In other words, for an incremental increase in the cost of the equipment, the markup required to cover the incremental cost increase is distinctly different than the average markup required to cover all business costs. The average aggregate distributor markup was determined to be 1.36 and is assumed to cover the direct business costs that are present at the current baseline (
i.e.,
10 SEER) level. Note that the average aggregate distributor markup of 1.36 is approximately equal to the value used in DOE's analysis for the SANOPR. The incremental distributor markup was determined to be 1.11 and is assumed to cover incremental equipment cost increases, such as those associated with increases in equipment efficiency.
DOE's analysis of contractor cost data revealed a significant difference between the markup required for covering labor and equipment expenses and the markup required for covering only equipment expenses. The markup covering all business expenses was determined to be 1.53 while the markup for only equipment expenses was determined to have a mean value of 1.27. The 1.53 markup value covering all business expenses is approximately equal to the value used in DOE's analysis for the SANOPR. Because the life-cycle cost analysis breaks out the contractor's installation cost (
i.e.,
the cost to install the equipment) from the cost which is charged for the equipment, only the markup value of 1.27 is applicable for marking up the equipment. As with the distributor markup, a contractor markup associated only with an incremental increase in equipment cost was also determined. Since the incremental markup was shown to be close to the average value of 1.27, only the average markup value was used in the analysis.
As a result of determining lower distributor and contractor markups on incremental equipment cost increases, such as those associated with more efficient equipment, the overall markups decrease as efficiency increases. Although comments argued that overall distributor and contractor markups should not decrease, no data was offered to counter DOE's approach. Thus, DOE has retained its methodology for estimating both distributor and contractor markups. Appendix D of the TSD provides more detailed information on this issue.
4. Energy Use
a. Residential Energy Consumption Survey
EMPA asserted that DOE violated well-established statistical principles by basing the proposed standards on small subsets of data from EIA's Residential Energy Consumption Survey (RECS). As a result, EMPA concludes that DOE simply has no reasonable claim of validity for either the calculations or its analytical conclusions. (EMPA, No. 241-LL at pp. 2-4).
As stated in the January 22 final rule, as part of the process to improve the energy efficiency standards analysis, DOE is committed to use of sensitivity analysis tools to evaluate the potential distribution of impacts among different subgroups of consumers. DOE believes that RECS provides a nationally representative household data set which is suited for conducting the type of sensitivity analyses suggested by the Process Improvement Rule. Limiting the RECS households to those equipped with either central air conditioners or heat pumps, the life-cycle cost analysis performs a household-by-household analysis that predicts the percentage of households that will incur net life-cycle cost savings or costs from an increased efficiency standard.
See
January 22 final rule, 66 FR 7178-7179.
b. Rebound Effect
Mercatus Center alludes to what it termed the “rebound effect” when stating that more efficient air-conditioning due to higher SEER standards would cause consumers to use their equipment more often, thereby negating some of the energy savings realized from the more efficient equipment. (Mercatus Center, No. 242 at pp. 9-10). Assumed under the rebound effect is that consumers will use more efficient equipment more often because of the greater utility bill savings they will realize relative to less efficient equipment.
Although DOE recognizes that consumers may utilize more efficient equipment more often, the LCC analysis did not attempt to account for the possible reduction in energy savings due to a rebound effect. As a result, the LCC impacts detailed in today's final rule may overestimate actual consumer cost and energy savings that result from an increase in the minimum energy efficiency standards for central air conditioners and heat pumps.
5. Rebuttable Payback Period
NWPPC asserts that 13 SEER, at least for split system heat pumps, is economically justified. NWPPC states the DOE has not justified why it should not adopt the HSPF 7.7 and SEER 13 standards for split system heat pumps since this level of efficiency satisfies the “rebuttable presumption” requirements of the law. (NWPPC, No. 287 at p. 3).
As noted in the July 25 SNOPR, DOE recognizes some standard levels for some product classes satisfy the rebuttable presumption requirements in section 325(o)(2)(B)(iii). But DOE points out that the statute requires DOE to use “the applicable test procedure” to calculate the payback periods for purposes of the 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 on the 1997 Residential Energy Consumption Survey, used in other DOE analyses, including evaluation of consumer impacts. 65 FR 59596. For this reason, the payback periods presented in Section VII of this portion of the preamble, entitled “Analytical Results and Conclusions,” are significantly longer than those calculated to determine whether the rebuttable presumption applies to these products. More importantly, DOE's economic justification analysis for a particular class of covered product involves consideration of factors other than the payback period. For example, as discussed in the July 25 SNOPR (66 FR 38837), one reason DOE did not propose Trial Standard Level 3 (12 SEER for air conditioners and 13 SEER for heat pumps) was the potential of those standards to cause heat pump owners to switch to resistance heating, and possibly adversely affect competition.
C. Shipments/National Energy Savings
1. Shipments Forecasts
Mercatus Center asserts that DOE's shipment model does not account for the reduced equipment sales that occur when consumers forego purchases due to the increased equipment prices resulting from higher efficiency standards. As a result of delayed consumer purchases, the energy savings to the nation would build up more slowly than forecasted by DOE. (Mercatus Center, No. 245 at p. 5). This is effectively an argument that the price elasticity for the air conditioner and heat pump market should be higher than what was assumed.
DOE has used historical saturation trends to establish price elasticities for the overall air conditioner and heat pump market. Higher saturation levels
are assumed to decrease price elasticity, which makes sales volume less sensitive to price increases. Over the past twenty years household saturation levels of central air-conditioning have increased, primarily due to the steady increase in real household incomes. In order to capture the effect that increased equipment price and household income have on equipment sales, the shipments model breaks the air conditioner market into the following segments: New construction, early (discretionary) replacements, regular replacements, extra repairs, and remodels. In the new construction market, the price of air conditioning has dropped over time relative to household income resulting in a corresponding increase in saturation to its current value of approximately 80 percent. Because of the high saturation in the new construction market, the purchase price elasticity for the new housing market is small relative to the early replacement market. But although the price elasticity is small, a decrease in shipments to the new construction market will still be likely when equipment prices increase (as we expect to occur under a new efficiency standard). As a result, for the case of a 13 SEER standard for split system air conditioners for example, shipments to the new construction market drop by approximately 3 percent. For comparison purposes, shipments to the early replacement market drop much more significantly (approximately 15 percent) as this market is far less saturated and the resulting purchase price is much more elastic. With regard to the other market segments, the regular replacement and extra repair market price elasticities are dependent on the age of the equipment in addition to price. Thus, the price elasticity for a relatively new air conditioner is much more elastic than that for a relatively old air conditioner. With regard to the remodel market (otherwise known as the market of stock homes without air-conditioning), historical data reveals that a relatively low number of non-air conditioned households purchase new air-conditioning equipment. Thus, like the early replacement market, the remodel market's price elasticity is relatively sensitive to first cost increases.
Because the price elasticities in the shipments model are based on actual historical data, DOE has retained the price elasticities developed for the central air conditioner and heat pump standards analysis.
2. Heat Rates
ACEEE asserts that DOE has severely underestimated the national energy savings resulting from more efficient standards due to the marginal heat rates which were used to convert electrical energy savings at the site (
i.e.,
at the household or commercial building) into fuel savings at the source (
i.e.,
at the power plant). ACEEE contends that the value assumed by DOE in 2018 and beyond (5519 Btu/kWh) is well below the heat rate estimates provided by EIA (e.g., 9617 Btu/kWh in 2020). Using the EIA heat rate estimate would lead to about a 2-fold increase in energy savings and reduction in pollution for 2020, with progressively smaller differences earlier. (ACEEE, No. 284 at pp. 9-10).
The standards analysis has used marginal heat rates calculated by using a version of EIA's National Energy Modeling System (NEMS-BRS)
14
to translate end use electricity savings to primary energy savings. The marginal heat rate is calculated by imposing a load reduction to the appliance end-use being analyzed in NEMS-BRS and observing the change in primary energy use. As noted by ACEEE, the marginal heat rates used in the central air-conditioning analysis are lower than expected. One would expect the central air-conditioning marginal heat rate to be higher than those of more base load appliances (like clothes washers or electric water heaters) because this peak-use appliance displaces more expensive, less efficient generation. Further, this marginal displaced plant should be not unlike the inefficient plant in place today because most rapid technological change occurs in the base load. The key to understanding this apparent paradox is that this conversion rate does not represent a specific marginal generator or combination of generators, but is actually a conversion factor that incorporates several simulated effects resulting from the standard.
14
EIA approves use of the name
NEMS
to describe only an AEO version of the model without any modification to code or data. Because our analysis entails some minor code modifications and the model is run under various policy scenarios that deviate from AEO assumptions, the name NEMS-BRS refers to the model as used here. For more information on NEMS, please refer to the National Energy Modelling System: An Overview 1998. DOE/EIA-0581 (98), February 1998. BRS is DOE's Office of Building Research and Standards.
The primary reason as to why the marginal heat rate is lower than expected is that the overall rate of efficiency improvement of the power system with the standard in place is slower than estimated by EIA in the AEO Reference Case. While there are many effects of the standard, DOE's analysis shows the two major components of the standard's impact on the power sector are: (1) The direct reduction in fuel burned in power plants and (2) the indirect effect whereby the slowing of electricity demand growth slows new investment, thereby impeding the rate of overall improvement in power sector efficiency. While this latter effect would seem to be trivial relative to the first, it grows significantly over time because fewer and fewer of more efficient generating plants are added to the power system. By the end of the forecast period, this effect becomes a significant drag on the primary energy savings of the standard, which explains why the marginal heat rate is less than that attributed to new technology. Further, it is a bigger drag on the benefits of peaking end-use efficiency improvements. These reduce peak demand more and slow investment more because the rate of new construction is heavily dependent on growth in peak demand. A more detailed discussion of this effect can be found in Appendix M of the TSD.
3. Fuel Switching
As discussed in the July 25 SNOPR, potential equipment switching from heat pumps to electric resistance heating due to high heat pump prices was cited as one of the reasons for not proposing a 13 SEER standard. The energy savings resulting from 13 SEER heat pumps would be eliminated if only a small fraction of heat pump owners (4 percent) switched to electric resistance heating.
See
July 25 SNOPR, 66 FR 38836.
ACEEE, NRDC, and NWPPC all disagreed that more efficient heat pump standards would cause consumers to switch to electric resistance heating. Both ACEEE and NRDC stated that if equipment switching was truly a concern, DOE should prevent such action not by lowering heat pump efficiency standards, but by promoting revisions to building energy codes to minimize the use of resistive heat. (ACEEE, No. 284 at p. 14; NRDC, No. 250 at pp. 18-20). ACEEE adds that DOE failed to account for the impact that electric resistance heating has on consumer energy bills (nearly doubling average annual heating bills) in their assessment of the potential of equipment switching. NWPPC claims that DOE overstated the potential of equipment switching if split system heat pump SEER standards were set higher than those for split system air conditioners. NWPPC states that the price difference between a heat pump and an air conditioner at the same SEER level is already very high (approximately $1400). The extra price associated with a more efficient heat pump (approximately $150 between 13
and 12 SEER) is not enough to alter consumer purchase decisions. (NWPPC, No. 287 at p. 3).
York agrees with DOE that there is potential for equipment switching if the standards for heat pumps are set too high. York states that the higher price associated with more efficient heat pumps would force consumers to choose either resistance heat and the resulting higher utility bills, or fossil fuel furnaces that may have to operate on higher cost fuels with more volatile prices such as oil or propane. (York, No. 270 at pp. 3-4).
As stated in the January 22 final rule, a significant number of households use electric resistance heat, indicating the potential for equipment switching from heat pumps to resistance heat.
See
66 FR 7180. Based on data from the 1997 RECS, a little over 14 percent of households with room or central air conditioning have either baseboard or forced air electric resistance heating compared to almost 10 percent of households which have heat pumps. The fact that such a large percentage of households currently use a combination of central or room air-conditioning with resistance heat to meet their space-conditioning needs supports DOE's view that there is a real possibility that some purchasers would choose to switch to resistance heat from heat pumps rather than pay the consumer prices associated with 13 SEER heat pumps. DOE has not attempted to estimate the number of consumers that might actually switch from heat pumps to resistance heating. Rather, DOE has determined that a mere 4 percent of heat pump households would need to switch to central air conditioners and electric resistance heating to negate the energy savings achieved from increasing the heat pump standard from 12 SEER/7.4 HSPF to 13 SEER/7.7 HSPF. Because such a small fraction of heat pump owners would need to switch to electric resistance heating to negate the energy savings realized from 13 SEER heat pumps, DOE believes the possibility of equipment switching is real enough to warrant its inclusion as a factor supporting a 12 SEER/7.4 HSPF standard.
D. Impact on Manufacturers
1. Cumulative Regulatory Burden
DOE considers that a standard level is not economically justified if it contributes to an unacceptable cumulative regulatory burden. The TSD contains information on cumulative regulatory burden (section 8.6 of the TSD), although as previously discussed, DOE did not explain how it considered this information in promulgating the 13 SEER standard on January 22, 2001. The TSD shows that the burden on manufacturers due to all other recent or imminent Federal regulations exceeds $479 million. DOE estimates the 13 SEER amendments to the standards for central air conditioners and heat pumps would contribute up to an additional $303 million in manufacturer costs, bringing the total cumulative regulatory burden to as high as $782 million. In light of that heavy burden, the July 25 SNOPR proposed 12 SEER standards that DOE estimates will reduce the expected financial burden on manufacturers from all new Federal and State regulations by $144 million compared to the 13 SEER final rule of January 22.
ACEEE, NRDC, and EPA all argued that DOE overestimated the impacts to the industry due to cumulative regulatory burden. EPA focused on the impacts due to the phase out of HCFC-22 (the hydrochlorofluorocarbon used as a refrigerant) and cited its own analysis as well as an estimate from Goodman Manufacturing to claim that DOE's estimate of $50 million per company is at least twice as high as warranted based on prior industry transitions and more recent trends. Referring to the costs incurred by the refrigerator industry in the mid-1980's to convert from CFCs to HCFCs, EPA suggests that a more reasonable estimate to phase out HCFC-22 is $20 to $30 million per company. EPA also cites Goodman's estimate that the combined cost of meeting a 13 SEER standard and transitioning from HCFC-22 is approximately $25 million per company, half of DOE's $50 million estimate for just converting to a new refrigerant. (EPA, No. 276 at pp. 2-4).
Because the industry has known for well over a decade of the impending phase out of HCFC-22, both ACEEE and NRDC claim that the costs for converting to a new refrigerant should be lower than DOE's estimate. ACEEE states that DOE seems to treat the costs of redesign for efficiency and redesign for refrigerants as additive, as though manufacturers would first redesign for efficiency (2006) and then for replacement refrigerants (2010). ACEEE believes this assumption would be demonstrably false as there is every reason to accomplish the two goals with a single re-engineering effort, both saving capital and improving time-to-market. ACEEE adds that since there is already fairly widespread use of an alternative refrigerant, R-410A, this strongly suggests that component manufacturers of compressors, coils, valves, lubricants, and all other critical components are already geared up and supplying the manufacturers with the necessary pieces to assemble non-HCFC-based heat pumps and air conditioners. With regard to the costs to be incurred by the industry to comply with Clean Air Act amendments for coating large appliances, ACEEE asserts that much more data are needed before any definitive estimates can be made. (ACEEE, No. 284 at pp. 11-13; NRDC, No. 250 at pp. 13-14).
Counter to the above arguments, ARI states that DOE is correct to give greater weight to cumulative burden. ARI asserts that the cost impacts due to cumulative regulatory burdens will exceed DOE's estimate of $479 million. ARI notes that various additional burdens to the industry were not quantified by DOE including: (1) Recently revised DOE efficiency standards for room air conditioners; (2) on-going DOE review of possible new minimum efficiency standards for residential furnaces; (3) DOE's adoption of standard levels related to ASHRAE 90.1-1999 (American Society of Heating, Refrigerating and Air-Conditioning Engineers, Inc., Standard 90.1 as revised in October 1999); (4) EPA's Metal Products and Machinery (MP&M) effluent guidelines and standards; and (5) EPA's allowance system for controlling production, import, and export of HCFCs. ARI states that DOE's own estimate that a 12 SEER standard would have $144 million less cumulative burden than a 13 SEER standard warrants adoption of a 12 SEER standard. (ARI, No. 259 at pp. 10-13).
In reaching its conclusion on manufacturer impacts, DOE considered the cumulative regulatory cost imposed on air conditioner manufacturers under the various standards scenarios, including manufacturers' investment to meet the new standard. As noted above, DOE estimated the cumulative regulatory impacts on manufacturers to likely exceed $782 million if a 13 SEER standard were adopted. This includes the $303 million reduction in industry value due to a 13 SEER standard and $479 million in other regulatory burdens, including costs associated with the HCFC phase out. It does not include other major Federal and State regulations that we listed but did not quantify.
The comments submitted by ACEEE, NRDC, and, in particular, EPA do not address the cumulative manufacturer impacts. Rather, the comments were limited to manufacturer's investment required to transition away from HCFC refrigerant. DOE's estimated $50 million per company investment to comply with the HCFC phase out was based on
interviews with all seven major air conditioner manufacturers during 1998 and 1999 when the firms were asked specific questions regarding the costs of replacing HCFCs in their equipment. In contrast, ICF Consulting, in its analysis for the EPA, refers to mid-1980's estimated costs associated with phasing CFCs out of the refrigerator industry, without explaining the link between those costs estimates and ICF's estimated $20 to $30 million per company to phase HCFCs out of the air conditioner industry.
DOE believes that the cost to convert from CFC refrigerants used in residential refrigerators is substantially less than the cost to convert from HCFC-22 refrigerant used in central air conditioners and heat pumps. For example, compressor capacity and power input for central air conditioners and heat pumps is an order of magnitude larger than compressor capacity and power input needed for home refrigerators (2 to 5 horsepower for central air conditioners versus one-quarter horsepower for home refrigerators). For this reason alone, significantly higher conversion costs would be expected. Further, central air conditioner or heat pump components (compressors, coils and air handlers) comprise almost the entire product cost. In contrast, over 50 percent of the cost of a home refrigerator is embodied in such non-refrigerant components as the insulated cabinet, shelves and other storage components, and other accessories such as icemakers and through the door ice and drink dispensers.
DOE also believes refrigerant related design changes will result in greater impact on the overall product cost and competitive position for air conditioner manufacturers than will be the case for refrigerator manufacturers. Since HFC-410A refrigerant operates at substantially higher operating pressures than HCFC-22 refrigerant, a major system redesign is necessary with HFC-410A refrigerant to take advantage of the beneficial aspects of the 40 to 50 percent higher pressure and to minimize any deleterious effects. With the alternative replacement refrigerant HFC-407C, system efficiency is reduced by 5 to 10 percent compared to use of HCFC-22 refrigerant in the same system. Significant resizing and reconfiguring of components is required to restore efficiency levels.
Replacing CFC-12 refrigerant in refrigerators with HFC-134a refrigerant reduces system efficiency by only 1 to 2 percent, which is easily offset by higher the higher efficiency compressors available at the time of CFC to HFC conversion. In contrast, replacing air conditioner compressors, whose efficiencies are already close to thermodynamic limits, with higher efficiency units to offset the impact of refrigerant related efficiency loss is not a viable option. Finally, there are fewer models in a typical appliance manufacturer's refrigerator product line than the number of residential central air conditioner and heat pump models (multiple efficiency level products) produced by a typical unitary air conditioner manufacturer. As a result, significantly more redesign and product validation is necessary for the unitary air conditioner manufacturers to convert their product lines and production from R-22 to either of the HFC blends.
ACEEE states that the rational approach to meeting the two regulatory requirements—new efficiency levels in 2006 and the phase out of HCFCs in 2010—is to do so simultaneously, rather than sequentially, 3 to 4 years apart. If both changes could be accomplished simultaneously, the investment would indeed be less than the cost of making the two changes separately. Although the characteristics of the new refrigerant, with significantly higher operating pressures, will add to the scope and cost of the development effort for the increased efficiency product families, in principle, product validation testing and retooling would occur only once, saving substantial resources.
The difficulty with this scenario is the competitive reality of the industry. Competition in the U.S. air conditioning industry is especially vigorous, with seven major manufacturers competing for business. Consumers have benefitted significantly from this, with real (inflation adjusted) prices having fallen steadily over the past 20 years, even during periods of rapid market growth. In addition, this level of competition in the domestic industry has provided no opportunity for foreign competition to displace main line HVAC products, preserving traditional manufacturing jobs in the U.S.
In 2006, in this environment of vigorous competition, each manufacturer will be faced with the choice of producing a cost optimized product line using HCFC-22 refrigerant or of also making the additional investment to convert to an HFC refrigerant, combined with meeting the increased efficiency standard level. It is clear that either HFC blend (R-407C or R-410A) will result in increased product cost (at comparable efficiency and performance level). If HFC refrigerant use would result in lower cost compared to HCFC-22, it is likely that manufacturers would already have voluntarily converted. In fact, hardware cost increases are readily identifiable and the higher cost HFC refrigerant alone will add $20 to $30 to the direct manufacturing cost of each unit. Therefore, it is highly likely that one or more manufacturers will opt to use HCFC-22 in the majority of their product line between 2006 and 2009. In that situation, the resulting cost advantage will force the other manufacturers to follow suit to remain competitive and avoid market share loss. While most manufacturers produce 12 and 13 SEER HFC air conditioners, they are typically low volume products and the tooling for full scale mass production does not exist. To increase production of 12 SEER or 13 SEER units, manufacturers will need expanded tooling to produce those models. To obtain the least cost, manufacturers will need to use designs that are better optimized for mass production. Consequently, DOE believes that much of the redesign, validation, and retooling effort faced by the industry is likely to happen once for efficiency standards in 2006 and a second time for the HCFC phase out in 2010.
2. Financial Burdens Associated With New Efficiency Standards
As explained in the July 25 SNOPR (66 FR 38829), the 13 SEER standards in the January 22 final rule were projected by the TSD to result in a negative cash flow for the industry in the year preceding the new standards' enforcement. Moreover, DOE's analysis shows that 13 SEER 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. Consequently, DOE proposed the 12 SEER standard to reduce the maldistribution of financial impacts on manufacturers and allow manufacturers to maintain a positive cash flow.
Trane concurred with DOE's action to reduce the maldistribution of financial impacts on manufacturers. Trane asserted that as efficiency is increased, a larger commodity market is created. This in turn reduces the market opportunities for companies that focus on value-added systems and services. Thus, the “volume” manufacturers (
i.e.,
lower operating cost manufacturers) benefit disproportionately. Trane also noted that under a 13 SEER standard, manufacturers who invest heavily in
research and development (R&D) would dedicate less funding to innovative programs, resulting in the entire industry focusing on the development of designs that address the absolute lowest commodity product. Trane's opinion was shared by Equipment Distributors. (Trane, No. 262 at pp. 2-4, 13-14; Equipment Distributors, Inc., No. 266 at p. 1).
NRDC disputed DOE's interpretation of the financial impacts to manufacturers by pointing out that DOE's own analysis undercuts the contention that the industry is impacted more severely under a 13 SEER standard. Referring to the TSD, NRDC notes that under two different scenarios (NAECA and Roll-up) lowering the standard from 13 to 12 SEER actually increases the burden to the industry (as measured by the industry net present value). (NRDC, No. 250 at pp. 20-22).
DOE disagrees with this comment. In its interpretation of manufacturer impacts, NRDC overlooks the important role that the efficiency mix assumptions play in the financial projections. In Section 8.4.8 of the TSD, we described the dynamics by which the profits of manufacturers with higher operating costs depend on the sale of premium products, and how those products are differentiable only at efficiency levels higher than the baseline. The closer the baseline unit is to the technological limit, the fewer consumers will “buy up” to a higher efficiency. For more and more consumers, the baseline will be the cost-effective option, and those consumers who wish to “buy up” will have fewer options and less financial incentive to do so. For these reasons, DOE assumed the Roll-up efficiency scenario to be the most probable for 13 SEER standard levels and the NAECA efficiency scenario most probable at 12 SEER standard levels. The resulting cumulative change in industry net present value (NPV) is negative $300 million at 13 SEER levels compared to negative $199 million at 12 SEER levels.
NRDC's interpretation of manufacturer impacts also overlooks short-run cash flow impacts of the standards. While NPV is useful for evaluating the long-term effects of new standards, short-term changes in cash flow are also important indicators of the industry's financial situation. The annual cash flow impacts at 13 SEER are $31 million more than at 12 SEER and turn the absolute cash flow negative. Depressed cash flow can strain the industry's access to capital or cause investors to flee.
OOE, Goodman, and ACEEE all claim that the industry impacts due to 13 SEER standards cannot be too severe as the technologies required to comply with the standard are conventional and well known. (OOE, No. 275 at p. 3; Goodman, No. 269 at p. 3; ACEEE, No. 284 at p. 7). Goodman specifically states that the only difference between a 10 SEER, 12 SEER, and 13 SEER units is a little more copper and aluminum used in manufacturing different sized coils.
DOE believes it is erroneous to conclude from the fact that technologies required to comply with standards are conventional and well known that it is a trivial exercise to increase production volumes to a level capable of satisfying the entire U.S. demand for air conditioners. Sales of 13 SEER equipment and higher are only 3 percent of all equipment sold and large investments would be required to convert all production to these levels. Furthermore, as previously described, much of the industry's financial health today depends on sales of 12 SEER equipment.
3. Small Manufacturers
The issue of how higher efficiency standards impact small manufacturers also drew several comments. The Department of Justice's April 5, 2001, letter to DOE regarding the potential effect on competition of new central air conditioner and heat pump efficiency standards stated that some small manufacturers would be disproportionately impacted under a 13 SEER standard, and noted that 100 percent of their current product line would fail to comply with the new efficiency requirement. The Department of Justice also stated that manufacturers of equipment for space-constrained installation sites (such as manufactured housing) would also be disproportionately impacted by a 13 SEER standard (DOJ, No. 285 printed in Appendix of this notice).
Goodman asserted that moving to a 13 SEER would not be a hardship to small manufacturers. Goodman claims that 13 SEER technology has been available to both large and small manufacturers for approximately 15 years. Goodman also points to the fact that Goettl Air Conditioning, a small manufacturer based in Arizona, supports the 13 SEER standard. (Goodman, No. 269 at p. 3). PG&E concurs with Goodman's statements. (PG&E, No. 274 at p. 4). NRDC asserts that higher efficiency standards encourage competition by shaking up the cozy arrangements that the bigger companies have drifted into, requiring manufacturers either to invest in building new components or to purchase new components from other suppliers. They claim that this provides smaller, nimble manufacturers an opportunity to unseat large but slow-adapting competitors. (NRDC, No. 250 at p. 31).
Both ARI and Rheem agree with the Department of Justice's statements regarding small manufacturers. Rheem states that small manufacturers will most likely not be able to afford the redesign and retooling of their equipment and manufacturing facilities to meet the 13 SEER standard. ARI quotes DOE's TSD in stating that “small manufacturers engaged in the production of conventional equipment would find it difficult to overcome the financial and technical burdens associated with the transition, and could decide to exit the market.” (ARI, No. 259 at pp. 10-11; Rheem, No. 248 at p. 3).
With regard to the manufacturers of equipment for the manufactured housing industry, both ARI and Goodman agree that products for markets like manufactured housing, where space constraints limit efficiency gains achieved with conventional technology, should be granted an exemption from higher efficiency standards. (ARI, No. 259 at p. 8; Goodman, No. 269 at p. 3).
The Department of Justice's concerns relate to disproportionate impacts on small manufacturers. Most small manufacturers produce only indoor coils or niche product lines. For small manufacturers who produce coils only, there are no intensive incremental technological or capital requirements for them to increase the efficiency of their products and DOE does not expect them to face any incremental burden as a result of the new standards. However, DOE has documented that manufacturers of niche air conditioning products, such as through-the-wall equipment and small duct, high velocity systems, face special technological and financial considerations compared to those faced by the major air conditioner producers. Consequently, new efficiency standards could be more detrimental to the financial situation of niche product manufacturers than of major manufacturers. Technical considerations are typically more important for certain niche manufacturers than for major manufacturers and have more severe consequences related to increased production costs or loss of sales volume due to increased price. Overall, if provisions were not made in the standard for niche products that face severe technological constraints, we would expect their impacts to be disproportionate to those on the industry as a whole. In today's rule, DOE is establishing separate product
classes for through-the-wall equipment and small duct, high velocity systems, which will be required to meet a lower SEER. DOE believes this meets the Department of Justice's concern regarding the impact of more stringent standards on small manufacturers.
DOE recognizes that products used for manufactured housing and modular housing also face space constraints. In its decision to propose 12 SEER standards for conventional products, DOE took into consideration the impacts of higher efficiency standards on the manufacturers of manufactured housing and modular housing products. For these applications, products at the 12 SEER level are currently on the market. DOE has concluded that, at the 12 SEER level, there is no need for a separate class for products used mainly in manufactured or modular housing.
4. Manufacturer Cost Estimates
Several comments asserted that DOE's manufacturing cost estimates derived from the reverse engineering analysis were too high. The comments stated that economies of scale in production and competitive forces will result in lower costs for the more efficient equipment as compared to pre-implementation estimates. (ACEEE, No. 284 at p. 2; CFA, No. 246 at p. 1; NCLC, No. 241-NN at p. 1). OOE specifically states that the cost of the commodity product at a minimum standard level cannot be appropriately characterized by looking at the mean or median manufacturer cost estimates from the reverse engineering analysis. (OOE, No. 275 at p. 3). Goodman states that their incremental cost for producing a 13 SEER unit is $100 and is comparable to DOE's estimate. (Goodman, No. 269 at pp. 3-4).
The reverse engineering analysis does in fact take into account economies of scale by considering larger production volumes for more efficient products after implementation of the new standards. In its production modeling, DOE also considered that manufacturers would cost-optimize their production at the new level because of more intense competition at that level. We expect this competitive pressure to drive manufacturing costs and this is illustrated by the results of the reverse engineering analysis which fall within the ARI range and nearer to the ARI minimum.
ARI, Trane, York, and EEI disagree with the above comments and assert that DOE's manufacturing cost estimates are too low. Trane states that the reverse engineering analysis was based on too small of a sample of units and eliminated units which fell out of the range of costs bounded by the manufacturers' submission. Trane nevertheless thinks that, despite its shortcomings, the reverse engineering analysis essentially confirmed cost levels submitted by ARI. However, Trane recommends that DOE utilize the cost data submitted by ARI. EEI concurs with this conclusion. (Trane, No. 262 at 9-10; EEI, No. 253 at p. 2). ARI states that it surveyed its manufacturer members after DOE issued its January 22 final rule. The results of the survey indicate that: (1) DOE has underestimated the baseline manufacturer costs by approximately 30 percent and (2) the additional cost of a 13 SEER split air conditioner over a 12 SEER is not $122 as estimated by DOE, but is at least approximately $305. ARI also refutes Goodman's claim that the amount of copper and aluminum needed for a 13 SEER unit is insignificant. In reviewing Goodman's current technical literature, ARI states that on average a Goodman 13 SEER split air conditioner weighs 44 pounds (18 percent) more than a 12 SEER system. More specifically, Goodman's 13 SEER condenser and evaporator coils are on average 20.2 percent and 11.5 percent heavier than the condenser and evaporator coils from their 12 SEER unit, respectively. (ARI, No. 259 at pp. 23-25). York states that the reverse engineering analysis is flawed because it focused on one size of equipment, a 3-ton unit and they believe that the whole range of equipment should have been analyzed, as size becomes much more problematic and costly at higher capacities. (York, No. 270 at p. 3).
DOE believes that the reverse engineering analysis is based on a sufficient equipment sample size to capture variability in design, manufacturing practices and costs across the range of products that would be subject to new standards. The equipment models were selected to be representative of the costs to manufacture existing baseline models and to capture the costs to manufacture products at potential new standards levels. To select representative equipment samples for the reverse engineering analysis, DOE requested that manufacturers identify equipment in their product lines most appropriate for this purpose. Four major manufacturers submitted design data for split cooling-only equipment, and three of those submitted design data for the other classes as well. This submission process yielded information on 62 models. DOE selected an additional nine models from catalogs of those and other manufacturers and also used the ARI Product Attribute Database and technical literature to describe the efficiency-related attributes of those products. Additionally, from the group of manufacturer submittals, three units were purchased for extensive disassembly and inspection. In their comment ARI does not explain how it derived baseline costs (estimation method, models included, product features, etc.), making an assessment or comparison to DOE's costs impossible. In contrast, the reverse engineering derivation method and resulting disaggregated baseline data are transparent and have been reviewed extensively by stakeholders.
Several comments also focused on the issue of productivity gains and asserted that these gains would lower manufacturing costs below the levels estimated by DOE. ACEEE, ASE, and OOE all refer to historic changes as shown by the U.S. Census Bureau's Current Industrial Reports series and state that air conditioner costs to the manufacturer have declined at a rate of 1.7 percent annually over the 1994-1998 period. They assert that DOE should include this rate of cost reductions in its analysis. They add that the Census figures are probably conservative as they ignore the fact that manufacturers tend to find ways to substantially increase productivity when standards take ef
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