[Federal Register Volume 59, Number 43 (Friday, March 4, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-4586]


[[Page Unknown]]

[Federal Register: March 4, 1994]


_______________________________________________________________________

Part II





Department of Energy





_______________________________________________________________________



Office of Energy Efficiency and Renewable Energy



_______________________________________________________________________



10 CFR Part 430




Energy Conservation Program for Consumer Products; Proposed Rule
DEPARTMENT OF ENERGY

Office of Energy Efficiency and Renewable Energy

10 CFR Part 430

[Docket No. EE-RM-90-201]

 
Energy Conservation Program for Consumer Products

AGENCY: Office of Energy Efficiency and Renewable Energy, Department of 
Energy (DOE).

ACTION: Notice of Proposed Rulemaking and Public Hearing.

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SUMMARY: The Energy Policy and Conservation Act, as amended, prescribes 
energy conservation standards for certain major household appliances, 
and requires the Department of Energy (DOE or Department) to administer 
an energy conservation program for these products. The National 
Appliance Energy Conservation Act amendments require DOE to consider 
amending the energy conservation standards for room air conditioners, 
water heaters, direct heating equipment, mobile home furnaces, kitchen 
ranges and ovens, pool heaters and fluorescent lamp ballasts; and to 
consider establishing energy conservation standards for television 
sets.

DATES: Written comments on the proposed rule must be received by the 
Department by May 18, 1994. The Department requests 10 copies of the 
written comments and, if possible, a computer disk.
    Oral views, data, and arguments may be presented at the public 
hearing to be held in Washington, DC, beginning at 9:30 a.m. on April 
5, 6 and 7, 1994.
    Requests to speak at the hearing must be received by the Department 
no later than 4 p.m., March 25, 1994. Copies of statements to be given 
at the public hearing must be received by the Department no later than 
4 p.m., March 29, 1994. The DOE panel will read the statements in 
advance of the hearing and would appreciate the oral presentations to 
be limited to a summary of the statement. The length of each oral 
presentation is limited to 15 minutes.

ADDRESSES: The hearing will be held at the U.S. Department of Energy, 
Forrestal Building, Room 1E-245, 1000 Independence Avenue, SW., 
Washington, DC. Written comments, oral statements, and requests to 
speak at the hearing are to be submitted to U.S. Department of Energy, 
Office of Energy Efficiency and Renewable Energy, EE-431, Energy 
Conservation Program for Consumer Products, Docket No. EE-RM-90-201, 
room 5E-066, Forrestal Building, 1000 Independence Avenue, SW., 
Washington, DC, 20585, (202) 586-7140.
    Copies of the transcript of the public hearing and public comments 
received may be read at the DOE Freedom of Information Reading Room, 
U.S. Department of Energy, Forrestal Building, room 1E-190, 1000 
Independence Avenue, SW., Washington, DC 20585, (202) 586-6020 between 
the hours of 8 a.m. and 4 p.m., Monday through Friday, except Federal 
holidays.
    For more information concerning public participation in this 
rulemaking proceeding see Section VI, ``Public Comment Procedures,'' of 
this notice.

FOR FURTHER INFORMATION CONTACT:
Michael J. McCabe, U.S. Department of Energy, Office of Energy 
Efficiency and Renewable Energy, Forrestal Building, Mail Station EE-
43, 1000 Independence Avenue, SW., Washington, DC 20585, (202) 586-9127
Eugene Margolis, Esq., U.S. Department of Energy, Office of General 
Counsel, Forrestal Building, Mail Station GC-72, 1000 Independence 
Avenue, SW., Washington, DC 20585, (202) 586-9507

SUPPLEMENTARY INFORMATION:

I. Introduction
    a. Authority
    b. Background
II. General Discussion
    a. Energy Descriptions
    b. Test Procedures
    c. Technological Feasibility
    1. General
    2. Maximum Technologically Feasible Levels
    d. Energy Savings
    1. Determination of Savings
    2. Significance of Savings
    e. Rebuttable Presumption
    f. Economic Justification
    1. Economic Impact on Manufacturers and Consumers
    2. Life-cycle Costs
    3. Energy Savings
    4. Lessening of Utility or Performance of Products
    5. Impact of Lessening of Competition
    6. Need of The Nation to Conserve Energy
    7. Other Factors
III. Discussion of Comments
    a. General Analytical Comments
    b. Product-Specific Comments
    1. Room Air Conditioners
    2. Water Heaters
    3. Direct Heating Equipment
    4. Mobile Home Furnaces
    5. Kitchen Ranges and Ovens
    6. Pool Heaters
    7. Clothes Washers
    8. Fluorescent Lamp Ballasts
    9. Television Sets
IV. Product-Specific Discussion
    a. Room Air Conditioners
    1. Efficiency Levels Analyzed
    2. Payback Period
    3. Significance of Energy Savings
    4. Economic Justification
    A. Economic Impact on Manufacturers and Consumers
    B. Life-cycle Cost and Net Present Value
    C. Energy Savings
    D. Lessening of Utility or Performance of Products
    E. Impact of Lessening of Competition
    F. Need of the Nation to Save Energy
    5. Conclusion
    b. Water Heaters
    1. Efficiency Levels Analyzed
    2. Payback Period
    3. Significance of Energy Savings
    4. Economic Justification
    A. Economic Impact on Manufacturers and Consumers
    B. Life-cycle Cost and Net Present Value
    C. Energy Savings
    D. Lessening of Utility or Performance of Products
    E. Impact of Lessening of Competition
    F. Need of the Nation to Save Energy
    5. Conclusion
    c. Direct Heating Equipment
    1. Efficiency Levels Analyzed
    2. Payback Period
    3. Significance of Energy Savings
    4. Economic Justification
    A. Economic Impact on Manufacturers and Consumers
    B. Life-cycle Cost and Net Present Value
    C. Energy Savings
    D. Lessening of Utility or Performance of Products
    E. Impact of Lessening of Competition
    F. Need of the Nation to Save Energy
    5. Conclusion
    d. Mobile Home Furnaces
    1. Efficiency Levels Analyzed
    2. Payback Period
    3. Significance of Energy Savings
    4. Economic Justification
    A. Economic Impact on Manufacturers and Consumers
    B. Life-cycle Cost and Net Present Value
    C. Energy Savings
    D. Lessening of Utility or Performance of Products
    E. Impact of Lessening of Competition
    F. Need of the Nation to Save Energy
    5. Conclusion
    e. Kitchen Ranges and Ovens
    1. Efficiency Levels Analyzed
    2. Payback Period
    3. Significance of Energy Savings
    4. Economic Justification
    A. Economic Impact on Manufacturers and Consumers
    B. Life-cycle Cost and Net Present Value
    C. Energy Savings
    D. Lessening of Utility or Performance of Products
    E. Impact of Lessening of Competition
    F. Need of the Nation to Save Energy
    G. Other Factors
    5. Conclusion
    f. Pool Heaters
    1. Efficiency Levels Analyzed
    2. Payback Period
    3. Significance of Energy Savings
    4. Economic Justification
    A. Economic Impact on Manufacturers and Consumers
    B. Life-cycle Cost and Net Present Value
    C. Energy Savings
    D. Lessening of Utility or Performance of Products
    E. Impact of Lessening of Competition
    F. Need of the Nation to Save Energy
    5. Conclusion
    g. Fluorescent Lamp Ballasts
    1. Efficiency Levels Analyzed
    2. Payback Period
    3. Significance of Energy Savings
    4. Economic Justification
    A. Economic Impact on Manufacturers and Consumers
    B. Life-cycle Cost and Net Present Value
    C. Energy Savings
    D. Lessening of Utility or Performance of Products
    E. Impact of Lessening of Competition
    F. Need of the Nation to Save Energy
    5. Conclusion
    h. Television Sets
    1. Efficiency Levels Analyzed
    2. Payback Period
    3. Significance of Energy Savings
    4. Economic Justification
    A. Economic Impact on Manufacturers and Consumers
    B. Life-cycle Cost and Net Present Value
    C. Energy Savings
    D. Lessening of Utility or Performance of Products
    E. Impact of Lessening of Competition
    F. Need of the Nation to Save Energy
    5. Conclusion
V. Environmental, Regulatory Impact, Takings Assessment, Federalism 
and Regulatory Flexibility Reviews
    a. Environmental Review
    b. Regulatory Impact Review
    c. ``Takings'' Assessment Review
    d. Federalism Review
    e. Regulatory Flexibility Review
VI. Public Comment Procedures
    a. Participation in Rulemaking
    b. Written Comment Procedures
    c. Public Hearing
    d. Issues Requested for Comment

I. Introduction

a. Authority

    Part B of Title III of the Energy Policy and Conservation Act, 
Public Law 94-163, as amended by the National Energy Conservation 
Policy Act, Public Law 95-619, by the National Appliance Energy 
Conservation Act, Public Law 100-12, by the National Appliance Energy 
Conservation Amendments of 1988, Public Law 100-357, and the Energy 
Policy Act of 1992, Public Law 102-486\1\ created the Energy 
Conservation Program for Consumer Products other than Automobiles. The 
consumer products subject to this program (often referred to hereafter 
as ``covered products'') are: Refrigerators, refrigerator-freezers and 
freezers; dishwashers; clothes dryers; water heaters; central air 
conditioners and central air conditioning heat pumps; furnaces; direct 
heating equipment; television sets; kitchen ranges and ovens; clothes 
washers; room air conditioners; fluorescent lamp ballasts; and pool 
heaters; as well as any other consumer product classified by the 
Secretary of Energy. Section 322. To date, the Secretary has not so 
classified any additional products.
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    \1\Part B of Title III of the Energy Policy and Conservation 
Act, as amended by the National Energy Conservation Policy Act, the 
National Appliance Energy Conservation Act, the National Appliance 
Energy Conservation Amendments of 1988, and the Energy Policy Act of 
1992, is referred to in this notice as the ``Act.'' Part B of Title 
III is codified at 42 U.S.C. 6291 et seq. Part B of Title III of the 
Energy Policy and Conservation Act, as amended by the National 
Energy Conservation Policy Act only, is referred to in this notice 
as the National Energy Conservation Policy Act.
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    Under the Act, the program consists essentially of three parts: 
testing, labeling, and Federal energy conservation standards. The 
Department, in consultation with the National Institute of Standards 
and Technology, is required to amend or establish new test procedures 
as appropriate for each of the covered products. Section 323. The 
purpose of the test procedures is to produce test results that measure 
the energy efficiency, energy use, or estimated annual operating cost 
of a covered product during a representative average use cycle or 
period of use and shall not be unduly burdensome to conduct. Section 
323 (b)(3). A test procedure is not required if DOE determines by rule 
that one cannot be developed. Section 323 (d)(1). Test procedures 
appear at 10 CFR part 430, subpart B.
    The Federal Trade Commission is required by the Act to prescribe 
rules governing the labeling of covered products for which test 
procedures have been prescribed by DOE. Section 324(a). These rules are 
to require that each particular model of a covered product bears a 
label that indicates its annual operating cost and the range of 
estimated annual operating costs for other models of that product. 
Section 324(c)(1). Disclosure of estimated operating cost is not 
required under section 324 if the Federal Trade Commission determines 
that such disclosure is not likely to assist consumers in making 
purchasing decisions, or is not economically feasible. In such a case, 
the Federal Trade Commission must require a different useful measure of 
energy consumption. Section 324(c). At the present time there are 
Federal Trade Commission rules requiring labels for the following 
products: room air conditioners, furnaces, clothes washers, 
dishwashers, water heaters, refrigerators, refrigerator-freezers and 
freezers, central air conditioners and central air conditioning heat 
pumps, and fluorescent lamp ballasts. 44 FR 66475, November 19, 1979, 
52 FR 46888, December 10, 1987, and 54 FR 28031, July 5, 1989.
    For each of the 12 covered products, the Act prescribes an initial 
Federal energy conservation standard. Section 325(b)-(h). The Act 
establishes dates of applicability for the standards in 1988, 1990, 
1992 or 1993, depending on the product, and specifies that the 
standards are to be reviewed by the Department within 3 to 10 years, 
also depending on the product. Section 325(b)-(h). After the specified 
period, DOE may promulgate new standards for each product; however, the 
Secretary may not prescribe any amended standard which increases the 
maximum allowable energy use, or decreases the minimum required energy 
efficiency of a covered product. Section 325(l)(1). The Department's 
current review of standards is for room air conditioners, water 
heaters, direct heating equipment, mobile home furnaces, kitchen ranges 
and ovens, pool heaters and fluorescent lamp ballasts and is 
considering establishing energy conservation standards for television 
sets. Section 325(g)(4)(A).
    Any new or amended standard is required to be designed so as to 
achieve the maximum improvement in energy efficiency that is 
technologically feasible and economically justified. Section 
325(l)(2)(A).
    Section 325(l)(2)(B)(i) provides that before DOE determines whether 
a standard is economically justified, it must first solicit comments on 
a proposed standard. After reviewing comments on the proposal, DOE must 
then determine that the benefits of the standard exceed its burdens, 
based, to the greatest extent practicable, on a weighing of the 
following seven factors:
    (1) The economic impact of the standard on the manufacturers and on 
the consumers of the products subject to such standard;
    (2) 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;
    (3) The total projected amount of energy savings likely to result 
directly from the imposition of the standard;
    (4) Any lessening of the utility or the performance of the covered 
products likely to result from the imposition of the standard;
    (5) 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;
    (6) The need for national energy conservation; and
    (7) Other factors the Secretary considers relevant.
    In addition, section 325(l)(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* * *.''
    Section 327 of the Act addresses the effect of Federal rules on 
State laws or regulations concerning testing, labeling, and standards. 
Generally, all such State laws or regulations are superseded by the 
Act. Section 327(a)-(c). Exemptions to this general rule include: (1) 
State standards prescribed or enacted before January 8, 1987, and 
applicable to appliances produced before January 3, 1988 (section 
327(b)(1)); (2) State procurement standards which are more stringent 
than the applicable Federal standard (Section 327(b)(3) and (f)(1)-
(4)); (3) State regulations banning constant burning pilot lights in 
pool heaters (Section 327(b)(4)); and (4) State standards for 
television sets effective on or after January 1, 1992, may remain in 
effect in the absence of a Federal standard for such product (Section 
327(b)(6) and 327(c)).

b. Background

    The National Energy Conservation Policy Act required DOE to 
establish mandatory energy efficiency standards for each of the 13 
covered products.\2\ These standards were to be designed to achieve the 
maximum improvement in energy efficiency that was technologically 
feasible and economically justified.
---------------------------------------------------------------------------

    \2\The consumer products covered by the National Energy 
Conservation Policy Act included: Refrigerators and refrigerator-
freezers; freezers; dishwashers; clothes dryers; water heaters; room 
air conditioners; home heating equipment not including furnaces; 
television sets; kitchen ranges and ovens; clothes washers; 
humidifiers and dehumidifiers; central air conditioners; and 
furnaces.
---------------------------------------------------------------------------

    The National Energy Conservation Policy Act provided, however, that 
no standard for a product be established if there were no test 
procedure for the product, or if DOE determined by rule either that a 
standard would not result in significant conservation of energy, or 
that a standard was not technologically feasible or economically 
justified. In determining whether a standard was economically 
justified, the Department was directed to determine whether the 
benefits of the standard exceeded its burdens by weighing the seven 
factors discussed above.
    The National Appliance Energy Conservation Act, which became law on 
March 17, 1987, amended the Energy Policy and Conservation Act in part 
by: redefining ``covered products'' (specifically, refrigerators, 
refrigerator- freezers, and freezers were combined into one product 
type from two; humidifiers and dehumidifiers were deleted; and pool 
heaters were added); establishing Federal energy conservation standards 
for 11 of the 12 covered products; and creating a schedule, according 
to which each standard is to be reviewed to determine if an amended 
standard is required.
    The National Appliance Energy Conservation Amendments of 1988, 
which became law on June 28, 1988, established Federal energy 
conservation standards for fluorescent lamp ballasts. These amendments 
also created a review schedule for DOE to determine if any amended 
standard for fluorescent lamp ballasts is required.
    The Energy Policy Act of 1992, which became law on October 24, 
1992, addressed various commercial appliances and equipment.
    As directed by the Act, DOE published an advance notice of proposed 
rulemaking with a 75-day comment period that ended December 12, 1990, 
for the eight products subject to today's rulemaking. 55 FR 39624, 
September 28, 1990. (Hereafter referred to as the September 1990 
advance notice). The September 1990 advance notice presented the 
product classes that DOE planned to analyze, and provided a detailed 
discussion of the analytical methodology and analytical models that the 
Department expected to use in performing the analysis to support this 
rulemaking. The Department invited comments and data on the accuracy 
and feasibility of the planned methodology and encouraged interested 
persons to recommend improvements or alternatives to the Department's 
approach. The comments in response to the advance notice are addressed 
in Sections II and III of this notice.

II. General Discussion

a. Energy Descriptors

    As discussed above, the Act established initial energy conservation 
standards for all of the covered products except television sets. Some 
of these standards were of a prescriptive form, such as the requirement 
of a no heat dry option for dishwashers, and others were performance 
standards, stated in terms of an energy descriptor, such as seasonal 
energy efficiency ratio for central air conditioners, annual fuel 
utilization factor for furnaces, etc. The intent of these standards, 
and the subsequent required DOE analyses and rulemaking regarding 
amending the standards, is to save energy. In conducting rulemakings 
and analyses required by the Act to determine if standards should be 
amended, the Department previously determined that the form of a 
standard may need to change in order to evaluate the efficiency 
standards. For example, the final rule issued for dishwashers changed 
the standard from the initial prescriptive standard to a performance 
standard based on an energy descriptor. 56 FR 22250, May 14, 1991. 
Additionally, the Department has determined in this rulemaking that 
energy descriptors may need to be changed when it is found they do not 
account for all of the energy or all types of energy consumed by an 
appliance. Not to change these energy descriptors would result in an 
incomplete analysis and could lead to standards being met by utilizing 
unaccounted energy resulting in products that might satisfy the energy 
descriptor but result in little or no total energy savings. Examples of 
unaccounted energy are the pilot light energy of a pool heater which is 
not accounted for by the current energy descriptor of Thermal 
Efficiency or the electrical fan energy of a gas furnace which is not 
accounted for by the current energy descriptor of the annual fuel 
utilization factor. Accordingly, the Department is proposing in today's 
notice to change the energy descriptors of the initial standards for 
direct heating equipment, mobile home furnaces, and pool heaters.

b. Test Procedures

    For each product discussed in today's proposed rulemaking there is 
an applicable DOE test procedure to evaluate its energy efficiency.
    A Notice of Proposed Rulemaking that would amend the test 
procedures for mobile home furnaces, direct heating equipment, and pool 
heaters was published in the Federal Register on August 23, 1993 (58 FR 
44538); in addition, another Notice of Proposed Rulemaking which 
includes amendments to the test procedures for clothes washers, water 
heaters, ranges and ovens is being published.

c. Technological Feasibility

1. General
    For those products and classes of products discussed in today's 
notice, DOE believes that the efficiency levels analyzed, while not 
necessarily being realized in production, are technologically possible. 
The technological feasibility of the design options are addressed in 
the product-specific discussion. The Department's criteria for 
evaluating design options for technological feasibility are that the 
design options are already in use by the respective industry, or that 
research has progressed to the development of a prototype.
2. Maximum Technologically Feasible Levels
    The Act requires the Department, in considering any new or amended 
standards, to consider those that ``shall be designed to achieve the 
maximum improvement in energy efficiency which the Secretary determines 
is technologically feasible and economically justified.'' (Section 325 
(l)(2)(A)). Accordingly, for each class of product under consideration 
in this rulemaking, a maximum technologically feasible (max tech) 
design option was identified. The max tech level is one that can be 
carried out by the addition of design options, both commercially 
feasible and prototypes, to the baseline units.\3\ The Department 
believes that in identifying the max tech level a unit must be capable 
of being assembled, but not necessarily mass produced, by the effective 
date of the amended standards. Manufacturing ability is determined 
under economic justification. For example, in the November 1989 Final 
Rule, DOE concluded that evacuated panels for refrigerators was a 
technically feasible design option since refrigerators had been 
produced on a limited scale with this technology included. However, DOE 
concluded that this technology was not economically justified because 
the chemical industry would not be able to make sufficient quantities 
of the raw materials commercially available by the effective date of 
the standard.
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    \3\The baseline unit is the most commonly used combination of 
engineering design options which are found in appliances that meet 
the existing National Appliance Energy Conservation Act standards 
except for television sets where no National Appliance Energy 
Conservation Act standard exists. In the case of television sets, 
the baseline is represented by the typical 19/20'' television with 
electronic tuning and remote control.
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    The max tech levels were derived by adding energy-conserving 
engineering design options to the respective classes in order of 
decreasing consumer payback. For example, the max tech level for room 
air conditioners includes higher efficiency fan motors, which were 
added early, and variable speed compressors, which were added later 
because of their slower payback. A complete discussion of each max tech 
level, and the design options included in each, is found in the 
Engineering Analysis. See Technical Support Document, Chapter 3.
    Tables 2-1 through 2-8 present the Department's max tech 
performance levels for all classes of the subject products:

Table 2-1.--Room Air Conditioner Maximum Technologically Feasible Levels
------------------------------------------------------------------------
                                                                Energy  
                       Product class                          efficiency
                                                                ratio   
------------------------------------------------------------------------
With louvered sides less than 6,000 Btu....................         13.0
With louvered sides 6,000 to 7,999 Btu.....................         12.1
With louvered sides 8,000 to 13,999 Btu....................         13.5
With louvered sides 14,000 to 19,999 Btu...................         13.6
With louvered sides 20,000 and more Btu....................         11.4
Without louvered sides less than 6,000 Btu.................         12.6
Without louvered sides 6,000 to 7,999 Btu..................         11.7
Without louvered sides 8,000 to 13,999 Btu.................         13.0
Without louvered sides 14,000 to 19,000 Btu................         13.1
Without louvered sides 20,000 and more Btu.................         11.0
With reverse cycle, and with louvered sides................         13.2
With reverse cycle, without louvered sides.................         12.7
------------------------------------------------------------------------


    Table 2-2.--Water Heater Maximum Technologically Feasible Levels    
------------------------------------------------------------------------
    Product class                        Energy factor                  
------------------------------------------------------------------------
Gas.................  .887 - (.001707  x  Measured Storage Volume (in   
                       gals.)).                                         
Oil.................  .835 - (.001707  x  Measured Storage Volume (in   
                       gals.)).                                         
Electric............  2.597 - (.001172  x  Measured Storage Volume (in  
                       gals.)).                                         
Gas instantaneous...  .897.                                             
------------------------------------------------------------------------


  Table 2-3.--Direct Heating Equipment Maximum Technologically Feasible 
                                 Levels                                 
------------------------------------------------------------------------
                                                                Annual  
                       Product class                          efficiency
------------------------------------------------------------------------
Gas wall fan type up to 42,000 Btu/hour....................         89.2
Gas wall fan type over 42,000 Btu/hour.....................         89.9
Gas wall gravity type up to 10,000 Btu/hour................         81.0
Gas wall gravity type over 10,000 Btu/hour up to 12,000 Btu/            
 hour......................................................         81.7
Gas wall gravity type over 12,000 Btu/hour up to 15,000 Btu/            
 hour......................................................         82.1
Gas wall gravity type over 15,000 Btu/hour up to 19,000 Btu/            
 hour......................................................         82.9
Gas wall gravity type over 19,000 Btu/hour up to 27,000 Btu/            
 hour......................................................         83.3
Gas wall gravity type over 27,000 Btu/hour up to 46,000 Btu/            
 hour......................................................         83.8
Gas wall gravity type over 46,000 Btu/hour.................         84.4
Gas floor type up to 37,000 Btu/hour.......................         88.6
Gas floor type over 37,000 Btu/hour........................         90.0
Gas room type up to 18,000 Btu/hour........................         85.9
Gas room type over 18,000 Btu/hour up to 20,000 Btu/hour...         87.3
Gas room type over 20,000 Btu/hour up to 27,000 Btu/hour...         88.1
Gas room type over 27,000 Btu/hour up to 46,000 Btu/hour...         88.9
Gas room type over 46,000 Btu/hour.........................         89.7
------------------------------------------------------------------------


 Table 2-4.--Mobile Home Furnace Maximum Technologically Feasible Levels
------------------------------------------------------------------------
                                                                Annual  
                       Product class                          efficiency
------------------------------------------------------------------------
Gas-fired..................................................         89.5
Oil-fired..................................................         85.8
------------------------------------------------------------------------


   Table 2-5.--Kitchen Range and Oven Maximum Technologically Feasible  
                                 Levels                                 
------------------------------------------------------------------------
                                                           Annual energy
                      Product class                             use     
------------------------------------------------------------------------
Electric oven, self-cleaning............................      209.2 kWh.
Electric oven, non-self-cleaning........................      157.3 kWh.
Gas oven, self-cleaning.................................     1.42 MMBtu.
Gas oven, non-self-cleaning.............................     1.07 MMBtu.
Microwave oven..........................................      228.2 kWh.
Electric cooktop, coil element..........................      257.7 kWh.
Electric cooktop, smooth element........................      258.5 kWh.
Gas cooktop.............................................   1.6274 MMBtu.
------------------------------------------------------------------------


     Table 2-6.--Pool Heater Maximum Technologically Feasible Level     
------------------------------------------------------------------------
                                                                Annual  
                       Product class                          efficiency
------------------------------------------------------------------------
Gas-fired..................................................         95.7
------------------------------------------------------------------------


  Table 2-7.--Fluorescent Lamp Ballast Maximum Technologically Feasible 
                                 Levels                                 
------------------------------------------------------------------------
                                                               Efficacy 
                       Product class                            factor  
------------------------------------------------------------------------
One F40 lamp...............................................         2.50
Two F40 lamp...............................................         1.28
Two F96 lamp...............................................         0.72
Two F96HO lamps............................................         0.50
Three F40 lamps............................................         0.87
Four F40 lamps.............................................         0.67
One F32T8 lamp.............................................         3.17
Two F32T8 lamps............................................         1.58
Three F32T8 lamps..........................................         1.06
Four F32T8 lamps...........................................         0.76
------------------------------------------------------------------------


    Table 2-8.--Television Set Maximum Technologically Feasible Level   
------------------------------------------------------------------------
                                                                Annual  
                       Product class                          energy use
                                                              (kWh/yr.) 
------------------------------------------------------------------------
Color 19''-20'' electronically tuned.......................        138.5
------------------------------------------------------------------------

    The Department believes that these are the max tech levels from an 
engineering analysis standpoint. Each of the levels was evaluated in 
accordance with the economic justification factors specified in the Act 
to determine economic justification.
    The Department evaluated each max tech level to determine if it 
would be economically justified at the time the standards would become 
effective. The Department rejected energy conservation standards that 
had unacceptable impacts on consumers or manufacturers (e.g., unusually 
long payback periods and substantially adverse impacts on 
manufacturers' returns on equity).

d. Energy Savings

1. Determination of Savings
    The Department forecasted energy consumption through the use of the 
Lawrence Berkeley Laboratory Residential Energy Model, which forecasted 
energy consumption over the period of analysis for candidate standards 
and the base case. The Department quantified the energy savings that 
would be attributable to a standard as the difference in energy 
consumption between the candidate standard's case and the base case. 
The base case represents the forecasts of outputs, e.g., prices, 
operating expenses, energy consumption, shipments, and manufacturer 
impacts in the absence of new or amended standards.
    The Lawrence Berkeley Laboratory Residential Energy Model was used 
by DOE in previous standards rulemakings. The Lawrence Berkeley 
Laboratory Residential Energy Model is explained in the Technical 
Support Document accompanying this notice. (See Appendix B to that 
document for a detailed discussion of the Lawrence Berkeley Laboratory 
Residential Energy Model.) The Lawrence Berkeley Laboratory Residential 
Energy Model contains algorithms to project average efficiencies, usage 
behavior, and market shares for each product.
    COMMEND is the Commercial Energy End-Use Model. It was developed by 
the Electric Power Research Institute, to characterize energy end-use 
in the commercial sector. For this rulemaking, the Commercial Energy 
End-Use Model is being used to evaluate more stringent standards on 
fluorescent lamp ballasts, which are found principally in the 
commercial sector of the economy.
    The market share calculations contain the following steps: 
potential purchasers may purchase any competing technology within an 
end-use, or none. For room air conditioners, fluorescent lamp ballasts, 
and television sets, the decision to purchase or not is modeled, and 
the fraction of the total that chooses each class, e.g., F40T12 lamps, 
F96T12 lamps, etc., is specified exogenously. For the other products, 
along with the considerations above, the choice of fuel is modeled. 
Long-term market share elasticities have been assumed with respect to 
equipment price, operating expense, and income. The effects of 
standards are expected to be lower operating expense and increased 
equipment price. The percentage changes in these quantities are used, 
together with the elasticities, to determine changes in sales volumes 
resulting from standards. Higher equipment prices will decrease sales 
volumes, while lower operating expenses will increase them. The net 
result depends on the standard level selected, and associated equipment 
prices and operating expenses.
    The Lawrence Berkeley Laboratory Residential Energy Model and the 
Commercial Energy End-Use Model (for ballasts only) are used to project 
energy use over the relevant time periods for seven of these products 
with and without amended standards, and, in the case of televisions, 
with and without standards. By comparing the energy consumption 
projection at alternative standard levels with the legislated 
standards, the Department estimated the amount of energy projected to 
be saved during the period 1996-2030.\4\ The energy saved is expressed 
in quads, i.e., quadrillions of British thermal units (Btu). With 
respect to electricity, the savings are quads of source or primary 
energy, which is the energy necessary to generate and transmit 
electricity. The Act defines ``energy use'' as the quantity of energy 
directly consumed by a consumer product at point of use. This is 
generally called ``site'' energy, as opposed to ``source'' energy. 
There are major differences between these types of energy. From data 
that remains rather constant over the years, the amount of electrical 
energy consumed at the site is less than one-third of the amount of 
source energy that is required to generate and transmit the site 
electrical energy.\5\ Therefore, it is important to identify whether 
the electricity involved is site or source energy.
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    \4\Lawrence Berkeley-Laboratory Residential Energy Model and the 
Commercial Energy End-Use Model were programmed to analyze a single 
standard level or alternate standard levels over the entire period. 
That is, the fact that a standard might be revised during subsequent 
rulemakings was not considered by the model. The Department believes 
that it is not possible to predict what result such reviews may 
have, and therefore it would be speculative to model any particular 
result. Therefore, for purposes of this rulemaking, each standard 
level that was analyzed was projected to have been in place from the 
time of implementation to the year 2030.
    \5\Energy Information Administration, Electric Power Annual 
1987, Tables 25 and 82, DOE/EIA-0348(87), 1987.
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    The Lawrence Berkeley Laboratory Residential Energy Model 
projections are dependent on many assumptions. Among the most important 
are responsiveness of household appliance purchasers to changes in 
residential energy prices and consumer income, future energy prices, 
future levels of housing construction, and options that exist for 
improving the energy efficiency of appliances. The Commercial Energy 
End-Use Model projections are dependent upon changes in commercial 
energy prices, future construction of commercial floorspace, 
responsiveness of building owners to future energy and equipment prices 
and to utility demand-side management programs, and options for 
improving the energy efficiency of lighting. As is the case with any 
complicated computer model simulation, the validity of the outputs is 
critically dependent on the inputs.
2. Significance of Savings.
    Under section 325(l)(3)(B) of the Act, the Department is prohibited 
from adopting a standard for a product if that standard would not 
result in ``significant'' energy savings. While the term 
``significant'' has never been defined in the Act, the U.S. Court of 
Appeals, in Natural Resources Defense Council v. Herrington, 768 F.2d 
1355, 1406 (DC Cir. 1985), concluded that Congressional intent in using 
the word ``significant'' was to mean ``non-trivial.'' Id. at 1373.

e. Rebuttable Presumption

    The National Appliance Energy Conservation Act established new 
criteria for determining whether a standard level is economically 
justified. Section 325(l)(2)(B)(iii) states:

    ``If the Secretary finds 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, there shall be a rebuttable presumption 
that such standard level is economically justified. A determination 
by the Secretary that such criterion is not met shall not be taken 
into consideration in the Secretary's determination of whether a 
standard is economically justified.''

    If 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 it is presumed that such 
standard is economically justified.\6\ This presumption of economic 
justification can be rebutted upon a proper showing.
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    \6\For this calculation, the Department calculated cost-of-
operation based on the DOE test procedures. Therefore, the consumer 
is assumed to be an ``average'' consumer as defined by the DOE test 
procedures. Consumers that use the products less than the test 
procedure assumes will experience a longer payback while those that 
use them more than the test procedure assumes will have a shorter 
payback.
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f. Economic Justification

    As noted earlier, Section 325(l)(2)(B)(i) of the Act provides seven 
factors to be evaluated in determining whether a conservation standard 
is economically justified.
1. Economic Impact on Manufacturers and Consumers
    The engineering analysis identified improvements in efficiency 
along with the associated costs to manufacturers for each class of 
product. For each design option, these costs constitute the increased 
per-unit cost to manufacturers to achieve the indicated energy 
efficiency levels. Manufacturer, wholesaler, and retailer markups will 
result in a consumer purchase price higher than the manufacturer cost.
    To assess the likely impacts of standards on manufacturers, and to 
determine the effects of standards on different-sized firms, the 
Department used a computer model that simulated hypothetical firms in 
the eight industries under consideration. This model, the Lawrence 
Berkeley Laboratory Manufacturer Impact Model, is explained in the 
Technical Support Document. See Technical Support Document, Appendix C. 
The Lawrence Berkeley Laboratory Manufacturer Impact Model provides a 
broad array of outputs, including shipments, price, revenue, net 
income, and short- and long-run returns on equity. An ``Output Table'' 
lists values for all these outputs in the base case and in each of the 
standards cases under consideration. It also gives a range for each of 
these estimates. A ``Sensitivity Chart'' shows how returns on equity 
would be affected by a change in any one of the model's nine control 
variables.
    For consumers, measures of economic impact are the changes in 
purchase price and annual energy expense. The purchase price and annual 
energy expense, i.e., life-cycle cost, of each standard level are 
presented in Chapter 6 of the Technical Support Document. Under section 
325 of the Act, the life-cycle cost analysis is a separate factor to be 
considered in determining economic justification.
    2. Life-cycle Costs.
    One measure of the effect of proposed standards on consumers is the 
change in operating expense as compared to the change in purchase 
price, both resulting from standards. This is quantified by the 
difference in the life-cycle costs between the base and standards cases 
for the appliance classes analyzed. The life-cycle cost is the sum of 
the purchase price and the operating expense, including installation 
and maintenance expenditures, discounted over the lifetime of the 
appliance.
    The life-cycle cost was calculated for the range of efficiencies in 
the Engineering Analysis for each class in the year standards are 
imposed, using real consumer discount rates of 2, 6, and 10 percent. 
The purchase price is based on the factory costs in the Engineering 
Analysis and includes a factory markup plus a distributor and retailer 
markup. Energy price forecasts are taken from the 1991 Annual Energy 
Outlook of the Energy Information Administration. (DOE/Energy 
Information Administration--0383(91)). Appliance usage inputs are taken 
from the relevant test procedures.
3. Energy Savings
    While the significant conservation of energy is a separate 
statutory requirement for imposing an energy conservation standard, the 
Act requires DOE, in determining the economic justification of a 
standard, to consider the total projected savings that are expected to 
result directly from revised standards. The Department used the 
Lawrence Berkeley Laboratory Residential Energy Model results, 
discussed earlier, in its consideration of total projected savings. The 
savings for the eight products are provided in Section IV of this 
notice.
4. Lessening of Utility or Performance of Products
    This factor cannot be quantified. In establishing classes of 
products and design options, the Department tried to eliminate any 
degradation of utility or performance in the eight products under 
consideration in this rulemaking. That is, to the extent that comments, 
or the Department's own research, indicated that a product included a 
utility or performance-related feature that affected energy efficiency, 
a separate class with a different efficiency standard was created for 
that product. In this way, the Department attempted to minimize the 
impact of this factor as a result of the standards that were analyzed.
5. Impact of Lessening of Competition
    It is important to note that this factor has two parts; on the one 
hand, it assumes that there could be some lessening of competition as a 
result of standards; and on the other hand, it directs the Attorney 
General to gauge the impact, if any, of that effect.
    In order to assist the Attorney General in making such a 
determination, the Department studied the affected appliance industries 
to determine their existing concentrations, levels of competitiveness, 
and financial performances. This information will be sent to the 
Attorney General. See Technical Support Document, Chapter 7. The 
Department has also provided the Attorney General with copies of this 
notice and the Technical Support Document for her review.
6. Need of The Nation to Conserve Energy
    The results of the environmental effects from each standard level 
for each product will be reported under this factor in the product 
specific discussion (Section IV) of this notice.
7. Other Factors
    This provision 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. The Secretary is 
seeking comments on two issues which may be considered in this 
rulemaking. The issues are (1) the incremental impact of appliance 
conservation standards on energy use, consumers, manufacturers and 
other factors (See the discussion regarding rebuttable presumption 
under General Analytical Comments) and, (2) the extent to which any 
proposed national efficiency standard is likely to disproportionally 
affect identifiable groups of consumers and whether the analysis should 
be modified to consider such impacts in the selection of efficiency 
standard levels (See the discussion regarding other comments under 
Product-Specific Comments for Direct Heating Equipment).

III. Discussion of Comments

    The Department received 90 written comments in response to the 
September 1990, advance notice. These comments addressed all aspects of 
the analysis. In this section, the Department will present discussions 
of the general analytical issues raised by the comments, followed by 
discussions of the product-specific issues.

a. General Analytical Comments

Discount Rates
    The Department's plans to use a 7 percent discount rate in the 
standards' analyses drew more comments than any other issue. (American 
Council for an Energy Efficient Economy, No. 6 at 6; Public Citizen, 
No. 7 at 4; Wayne Goode, No. 8 at 1; Ohio Sierra Club, No. 11 at 1; 
Natural Resources Defense Council, No. 13 at 5 and appendix; Rocky 
Mountain Institute, No. 15 at 1; Citizens Environmental Coalition 
Education Fund, Inc. No. 18 at 1; California Energy Commission, No. 24 
at 2; Advance Transformer, No. 25 at 3; Whirlpool Corporation, No. 31 
at 1; Northwest Power Planning Council, No. 32 at 2; Champaign County 
(IL) Board, No. 36 at 1; Washington Gas Light, Inc., No. 37 at 2; 
George Smith, No. 38 at 1; Lone Star Gas Co., No. 39 at 2; Florida 
Energy Office, No. 42 at 2; Sierra Club, No. 43 at 2; Ohio Office of 
the Consumers' Council, No. 60 at 7; Helen Satterthwaite, No. 67 at 1; 
Warren Widener, No. 78 at 1; and Martin Frost, No. 80 at 1).\7\ Most of 
the comments asserted that the 7 percent rate was unjustifiably high, 
while several stated that a 7 percent or even higher rate was an 
appropriate rate for the various analyses.
---------------------------------------------------------------------------

    \7\Comments on the advance notice of proposed rulemaking have 
been assigned docket numbers and have been numbered consecutively.
---------------------------------------------------------------------------

    Commentators seeking a higher rate focused on consumer impacts, 
while those advocating a lower rate generally pointed to societal 
benefits. These different perspectives are not easily captured in a 
single discount rate. The Department has reconsidered the issue, and 
has decided that multiple discount rates, with each pertaining to a 
different perspective, are warranted. These different rates (i.e., 
consumer, commercial and societal) are used to capture the impacts of 
the standards on different constituents. The consumer and commercial 
rates are used to calculate life-cycle costs for purchasers of 
residential and commercial products, respectively. The social discount 
rate is used to calculate the net present value of standards for the 
Nation as a whole. Separate rates, therefore, were used for the 
consumer sector, the commercial sector (since fluorescent lamp ballasts 
are purchased primarily by commercial firms), and for society as a 
whole. This discussion will describe the derivations of the consumer, 
commercial and social discount rates that were used in the different 
analyses.
    1. Consumer discount rate. On November 17, 1989, DOE published a 
final rule for refrigerators, refrigerator-freezers, freezers, and 
small gas furnaces (54 FR 47916, November 17, 1989), hereafter referred 
to as the November 1989 final rule. In the November 1989 final rule, 
DOE selected a 7 percent discount rate, based on a methodology derived 
from the Court of Appeals decision, Natural Resources Defense Council 
v. Herrington, 768 F.2d 1355, 1406 (D.C. Cir 1985). As discussed in the 
November 1989 final rule, the applicability of the court decision 
changed somewhat with the passage of the Tax Reform Act of 1986 (Pub. 
L. 99-514). The Tax Reform Act phased out the deductibility of interest 
paid on consumer loans. Based on the revised methodology, DOE 
calculated a range of discount rates that consumers incur; this range 
is from less than 1 percent to slightly more than 15 percent. As 
explained in the November 1989 final rule, DOE selected 7 percent for 
the analysis for purposes of that rulemaking proceeding because it was 
near the mid-point of the potential consumer discount rates. In 
addition, DOE believes that the approach is reasonable in that it was 
related to the opportunity cost of money for purchasing consumer 
durables. As such, it was justified in terms of alternate consumer 
purchases that are foregone in order to finance the purchases of 
appliances.
    In a subsequent final rule on energy conservation standards for 
dishwashers, clothes washers, and clothes dryers (56 FR 22250, May 14, 
1991), hereafter referred to as the May 1991 final rule, the Department 
restated that the 7 percent rate was near the mid-point of the range of 
consumer finance rates for the purchase of appliances. It was further 
stated that if the Department could obtain data on the methods that 
consumers use to purchase appliances, it could develop a weighted-
average, real, after-tax finance rate to use as a consumer discount 
rate in the analysis.
    In its comments on the September 1990 advance notice, Whirlpool 
Corporation offered estimates of consumer financing of purchases of its 
equipment: 40 percent of retail sales are paid in cash; 35 percent use 
credit cards; 25 percent use retailer loans. These figures excluded new 
home construction, which accounts for approximately 25 percent of 
Whirlpool Corporation's total sales. (Whirlpool Corporation, No. 31 at 
1-2 and Appendix 1.)
    While Whirlpool Corporation represents only one source of data, the 
Department has no reason to believe that Whirlpool Corporation's 
customers differ from those of other manufacturers, and, therefore, 
accepted Whirlpool Corporation's estimates as representative.
    These numbers were applied to the real, after-tax finance rates 
that are incurred by consumers, as reported in the November 1989 final 
rule. Those rates were estimated to be just over 3 percent for 
appliances purchased as part of a new home (whose finance rate is a 
tax-deductible mortgage interest rate), to slightly under 1 percent for 
cash purchases, to more than 15 percent for credit card purchases.
    When these rates were applied to Whirlpool Corporation's estimates, 
the resulting weighted-average, real, after-tax rate incurred by 
consumers in appliance purchases was approximately 6 percent. The 
Department, then, used 6 percent for the consumer discount rate in the 
analyses, with sensitivities at 4 and 10 percent. The Department 
believes that this range of discount sensitivities will capture the 
real, after-tax rates that consumers encounter in financing the 
purchase of an appliance.
    The Department recognizes however, that there remains considerable 
uncertainty in this estimate of the average consumer discount rate. 
There are numerous possible financial interactions that could be 
involved in the purchase of an appliance. For example, a credit card 
purchase could be paid in full within the customary billing grace 
period, thereby being exempt from finance charges, and, in effect, 
resembling a cash purchase. This would tend to put downward pressure on 
the weighted-average range of purchase financing choices. On the other 
hand, a cash purchase may actually be financed, indirectly, by an 
increase in credit card debt. This would tend to put upward pressure on 
the weighted-average range of purchase finance rates. Furthermore, this 
analysis does not take into account varying consumer perceptions of the 
value of reducing current consumption in favor of longer- term 
financial gains. For these reasons, the Department continues to solicit 
data that might provide a more complete basis for the derivation of a 
consumer discount rate used in these analyses.
    Furthermore, while financing rates may indicate the direct 
financial impact to consumers of an investment in increased efficiency, 
they do not reflect either other types of investments available to 
them, or varying consumer perceptions of the value of reducing current 
consumption in favor of longer-term financial gains. For example, what 
value of energy savings does a consumer need to receive from an 
investment in an energy efficient refrigerator in order to justify 
reducing savings, increasing debt, or delaying the purchase of other 
consumer goods?
    The costs of consumer financing does not indicate whether there are 
similar investment opportunities, available to most consumers, that 
produce higher rates of return. For example, are there home 
improvements or other investments that could be made by most consumers 
that would have higher rates of return than an investment in an energy-
efficient appliance? Also, a consumer discount rate based on consumer 
financing expenses does not fully account for the risks of individual 
consumer investments in improved appliance efficiency. For example, the 
actual rates of return experienced by individual consumers may vary 
widely depending on energy prices, appliance usage and useful life.
    Some have argued that implicit discount rates estimated through an 
examination of actual consumer purchases of appliances and related 
consumer equipment would be a better basis for the consumer discount 
rate used under this program. Various studies have indicated that these 
implicit discount rates range from 3 percent to as high as 100 percent 
(or more) for certain appliances. However, because implicit discount 
rates are based on actual consumer purchase behavior, they also reflect 
the extent to which the numerous potential market failures in energy 
efficiency investments occur, such as inadequate information, 
conflicting owner/renter incentives, and second party (builder/
contractor) purchases. One of the major reasons why Federal appliance 
efficiency standards were originally established was to overcome these 
market failures regarding investment in energy efficiency. 
Consequently, DOE does not believe unadjusted (i.e., not corrected for 
potential biases) discount rates derived from actual consumer behavior 
should be used in evaluating the economic impact of proposed standards 
on consumers.
    This conclusion appears to be supported by court rulings affecting 
the program. In Natural Resources Defense Council v. Herrington, 768 
F.2d 1355, 1406 (DC Cir. 1985), the court stated that ``the entire 
point of a mandatory program was to change consumer behavior'' and 
``the fact that consumers demand short payback periods was itself a 
major cause of the market failure that Congress hoped to correct.'' The 
Department believes that the intent of the legislation which 
established the appliance standards program is to achieve energy 
savings which are being foregone because of market failures which 
distort consumer decision-making (and behavior) from investing in 
energy efficiency.
    However, if information were available on the implicit discount 
rates revealed by consumer decision-making in the absence of any 
significant market- failure biases, it might provide a better basis for 
the discount rates to be used in assessing the impacts on consumers of 
proposed appliance efficiency standards. Another approach might be to 
examine the rate of return consumers would require from other fixed 
investments of comparable risk and liquidity. The Department solicits 
information on the results of any analyses that could support the 
derivation of discount rates using either of these approaches.
    On the other hand, the nature of the appliance standards program 
may imply that a household average required rate of return, whether 
based on actual appliance purchase decisions (in the absence of 
potential market failure distortions) or on comparable investments, may 
understate the appropriate rate. Because the Act requires minimum 
standards, their effect is generally greater on the low-efficiency, low 
purchase-price end of the market, sometimes eliminating the lowest-
priced models. To the extent that low-income households purchase a 
disproportionate share of these low-efficiency/low-price appliances, 
they will be disproportionately represented among the affected 
consumers.
    At the same time, limited empirical research\8\ suggests that these 
households exhibit higher-than-average discount rates (i.e., required 
rates of return) across all of their time-sensitive decisions, 
including (but not limited to) their appliance purchases. If, indeed, 
these households are disproportionately affected by standards, their 
discount rates would need to be given greater weight in determining the 
effects of alternative standard levels on consumers. The Department 
seeks comment on this issue.
---------------------------------------------------------------------------

    \8\Train, Kenneth, Discount Rates in Consumers' Energy-Related 
Decisions: A Review of the Literature; Energy, December 1985.
---------------------------------------------------------------------------

    Based on the information now available, it appears that the average 
consumer discount rate lies in the range of 4 to 10 percent. As 
discussed above, the Department has used a 6 percent consumer discount 
rate for the analyses in this rulemaking. The Department has conducted 
sensitivity analyses using the 4 to 10 percent range and will continue 
to solicit data and comments that would provide a better basis for the 
derivation of consumer discount rates.
    2. Commercial discount rate. For a discount rate that would be 
applicable in the fluorescent ballast analysis, the Department believes 
that one based on consumer expenses is inappropriate; the rate should 
be based on costs in the commercial sector, since fluorescent lamp 
ballasts are purchased for use primarily in that sector. In developing 
a rate for use in the commercial sector, the Department considered a 
procedure similar to the procedure used to develop a consumer discount 
rate, and examined possible methods of financing purchases of more 
efficient lighting equipment. One such method would be to finance a 
loan. For the most credit-worthy customers, the prime rate of interest 
would be applicable. Tables 15 and 21 of the DRI/McGraw-Hill Review of 
the U.S. Economy; Long-Range Focus; Winter 1990-91 presented forecasts 
of prime interest rates and percentage changes in the consumer price 
index (CPI) for each year between 1995 and 2015. During this period, 
the prime rate is expected to be fairly stable, ranging from 8.37 
percent to 8.50 percent. The changes in the consumer price index are 
projected to range from 3.88 percent to 4.90 percent. The resulting 
real rates of interest are projected to range from 3.55 percent in 2014 
to 4.64 percent in 1995, with a 21-year average of 3.85 percent.
    Most companies, of course, are not eligible for prime-rate loans. 
For them, the terms of borrowing are generally less favorable. While 
DRI/McGraw-Hill does not forecast long-term, non-prime loan rates, some 
insight can be gained from how such loans rates differ from prime loan 
rates.
    Based on a telephone conversation with the Federal Reserve System, 
DOE learned that most commercial loans were in the 6 percent to 15 
percent range. Using the higher rate, 15 percent, and deducting the 
applicable changes in the consumer price index, the Department 
calculated real rates of interest ranging from 10.1 percent in 2014 to 
11.2 percent in 1995, with a 21-year average of 10.46 percent.
    Alternatively, the Department looked at the divergence of the 15 
percent loans from the then current prime rate; such loans were 50 
percent greater than the 10 percent prime rate prevailing in 1990. By 
applying a 50 percent increase to the projected prime interest rates, 
the Department obtained nominal rates of interest of 12.56 percent to 
12.75 percent. After a deduction of the expected changes in the 
consumer price index, real rates of interest ranged from 7.76 percent 
to 9.87 percent, averaging 8.05 percent over the 21-year period.
    Another possible financing mechanism would be for the corporation 
to finance the purchase of the more efficient equipment by displacing 
investment capital. In Table 8 of DRI/McGraw-Hill's forecasts, there 
are annual projections of the after-tax costs of financial capital for 
each year between 1995 and 2015. After converting the numbers to pre-
tax costs, and after deducting the expected changes in the consumer 
price index, the Department obtained the respective real rates of 
interest. The costs of financial capital are projected to range from 
11.61 percent in 1995 to 12.86 percent in 2015. The consumer price 
index rates forecasts are the same as before, and the resulting real 
finance rates range from 7.67 percent in 2000 to 7.96 percent in 2015, 
with the 21-year average being 7.86 percent.
    Of the different possible means of companies paying for 
conservation improvements in lighting equipment, the range of real 
rates of interest is from 3.55 percent to 11.12 percent.
    Economic theory suggests that in deriving a commercial discount 
rate, the Department should consider the opportunity costs of 
commercial investments that were foregone. Therefore, the Department 
also investigated real rates of return from commercial investment 
activities between 1961 and 1990. These data were compiled from Annual 
Statistical Digests of the Board of Governors of the Federal Reserve 
System. The variables that were examined were commercial trade credit, 
i.e., bankers acceptances; time deposits, i.e. certificates of 
deposits; U.S. Treasury securities; and commercial paper. During the 
30-year period, the average real investment returns realized in the 
commercial sector ranged from 2.02 percent for bankers' acceptances 
(which constituted 70 percent of the investment dollars), to 2.29 
percent for investments in Treasury securities (which constituted 9 
percent of commercial investment dollars).
    When more risky investments, such as tax-exempt (class B) and 
corporate (AA) bonds were examined, their real rates were 1.27 percent 
and 3.52 percent, respectively, over the 1970-to-1986 period. These 
real rates, too, were substantially outside of the purchase finance 
range. The real rates for such bonds in earlier years also fell below 
the purchase financing range of rates.
    After considering the above, the Department elected to use four 
percent as the commercial discount rate. The Department believes that 
this rate approximates the real costs likely to be incurred by private 
businesses which are able to finance small additional investments in 
energy efficiency by reducing relatively liquid corporate investments, 
e.g., bankers' acceptances, or by obtaining loans at or near the prime 
interest rate, without diminishing their normal business investment.
    However, if increasing investments in more energy efficient 
technology are assumed to displace other, more profitable business 
investments, or would require loans available only at more typical 
commercial interest rates, the approximate discount rate would be 
higher. For example, between 1980 and 1991, the real rates of return to 
nonfinancial corporations averaged between 7 and 8 percent based on 
data contained in Table 1.16 of the National Income and Product 
Accounts, as presented in the Department of Commerce's Survey of 
Current Business and, as noted above, real commercial interest rates 
often exceeded 7 percent.
    The Department invites comment on the most appropriate methodology 
upon which to base the commercial discount rate and the best types and 
sources of data to use in the calculation of this rate.
    3. Social discount rate. In identifying a discount rate that is 
appropriate for use in calculating benefits to the Nation as a whole, 
the Department must consider the opportunity costs of devoting more 
economic resources to the production and purchase of more energy-
efficient appliances and fewer national resources to other alternative 
types of investment. It is not necessary, however, to determine the 
characteristics of specific classes of consumers or businesses directly 
impacted by the proposed standard. For these reasons, a broad measure 
of the average rates of return earned by economic investment throughout 
the United States is the most useful basis for a social discount rate.
    Using this approach, the Office of Management and Budget prepared a 
Background on OMB's Discount Rate Guidance in November of 1992, 
containing an analysis of the average annual real rate of return earned 
on investments made since 1960 in nonfinancial corporations, non-
corporate farm and non-farm proprietorships, and owner-occupied housing 
in the United States. The results of this analysis indicated that since 
1980, the annual real rate of return for these categories of 
investments averaged slightly more than 7 percent, ranging from a low 
of about 4 percent for owner-occupied housing (which represented about 
43 percent of total capital assets in 1991 of about $15 trillion) to a 
high of about 9 percent on non-corporate farm and non-farm capital 
(which represented about 23 percent of the total). Between 1960 and 
1980, the average real rate of return on capital was higher, averaging 
about 8.5 percent in the 1970's and about 11.2 percent in the 1960's. 
As a result of this analysis, the Office of Management and Budget chose 
to designate 7 percent as the social discount rate specified in 
revisions to Office of Management and Budget Circular A-94 issued on 
November 10, 1992 (57 FR 53519). In that revised circular, Office of 
Management and Budget established, inter alia, discount rate guidance 
for benefit-cost analyses of regulatory programs that provide benefits 
and costs to the general public.
    An alternative method for deriving such social discount rate might 
be broad measures of the costs of financing capital investments in the 
United States. One such measure is the Federal Government's cost of 
borrowing or the interest rate that is payable on long-term Government 
securities. Another might be the prime interest rate available to major 
corporate borrowers. In order to derive a real discount rate from 
either of these measures the relevant interest rate would be adjusted 
for inflation.
    With regard to long-term Government securities as an example, the 
nominal rates during June 1991 on Government securities maturing 
between the years 2000 and 2015 averaged 8.55 percent. Adjusted by long 
term forecasts of inflation, the rate would be approximately 4 percent. 
Because the Government borrowing rate most accurately reflects the 
direct cost to the Government of added investment, the Office of 
Management and Budget has used this approach as the basis for discount 
rates used in evaluating Federal investments which directly affect 
Federal costs (such as energy efficiency investments in Federal 
facilities). Using the prime interest rate or some combination of rates 
to reflect non-Federal financing costs would result in somewhat higher 
rates.
    As indicated above, because the cost of financing additional 
capital investments does not reflect the full opportunity cost of 
shifting private investment from one area to another, it is not 
considered to be a good basis for deriving discount rates. For this 
reason, DOE is now proposing the use of a 7 percent social discount 
rate in National net present value calculations, although it will also 
perform sensitivity analyses at 4 percent and 10 percent. The 
Department seeks comment on appropriate discount rates for the 
analysis.
Life-Cycle Cost Analysis
    Another consumer issue that drew a considerable number of comments 
was the suggestion that in its life-cycle cost analyses, the Department 
include any additional installation and maintenance expenses that may 
result from conservation standards. (Southern Gas Association, No. 4 at 
10; Energen, No. 12 at 2; American Gas Association, No. 23 at 2; 
Florida Energy Office, No. 42 at 1; Southern Natural Gas Company, No. 
46 at 1; Montana-Dakota Utilities Company, No. 54 at 4; Laclede Gas 
Company, No. 55 at 4; Oklahoma Natural Gas Company, No. 57 at 3; ENTEX, 
No. 58 at 4-5; Gas Research Institute, No. 59 at 1; Arkansas Western 
Gas Company, No. 64 at 7; Piedmont Natural Gas Company, No. 71c at 4; 
Public Service Company of North Carolina, Inc., No. 74 at 4; Southern 
California Gas Company, No. 79 at 1; and Louisiana Gas Service Company, 
No. 81 at 2).
    In each of the consumer analyses, such as payback and life-cycle 
costs, the Department did include all incremental expenses caused by 
standards. For those design options entailing additional maintenance 
expenses (beyond the base case), the incremental maintenance expenses 
were included in the consumer price of the design option. Installation 
expenses that were specific to the design option and independent of the 
application were also included in the consumer price of the design 
option.
Regional and Other Variations in Impacts
    Several comments recommended that the Department look at regional 
variations in usages of some climate-sensitive products, e.g., direct 
heating equipment. (Southern Gas Association, No. 4 at 10; United Texas 
Transmission Company, No. 26 at 3; Florida Energy Office, No. 42 at 1; 
Arkansas Western Gas Company, No. 64 at 3; and Minnegasco, No. 83 at 
2.).
    The standards analysis assumes that nationwide average appliance 
usage rates, energy prices, and efficiency applied to all consumers in 
all areas of the nation, although the Department recognizes that there 
exist large variations in each of these factors. However, the 
Department did conduct a sensitivity analysis on the life-cycle cost 
for energy prices by substituting various high and low regional prices 
for national prices. The results of these sensitivities are presented 
in the Technical Support Document. See Technical Support Document, 
Chapter 4. However, these sensitivity analyses were performed at the 
national level, and no effort is made to link them with any specific 
population groups.
    The Department seeks information concerning the extent to which any 
proposed national efficiency standard is likely to affect identifiable 
groups of consumers disproportionally and how best to consider such 
impacts in the selection of efficiency standard levels. The Department 
is also seeking additional data to help it better assess the 
disproportionate impacts on such groups.
Usage
    On a related issue, numerous comments suggested that the usage 
variables the Department should use are those that are calculated from 
field usage data. In addition, many of the comments provided estimates 
of annual operating expenses of several of the appliances, e.g. water 
heaters, direct heating equipment, and ranges and ovens. (Southern Gas 
Association No. 4 at 4; ---- American Council for an Energy Efficient 
Economy, No. 6 at 2; Whirlpool Corporation, No. 31 at 17, 19; 
Washington Gas Light, No. 37 at 5; Lone Star Gas Company, No. 39 at 3; 
Gas Appliance Manufacturers Association, No. 40 at 8; Columbia Gas, No. 
45 at 3; Southern Natural Gas Company, No. 46 at 1; Montana-Dakota 
Utilities Company, No. 54 at 3; Laclede, No. 55 at 4; Oklahoma Natural 
Gas Company, No. 57 at 3, 5; Association of Home Appliance 
Manufacturers, No. 61A at 36; Arkansas Western Gas Company, No. 64 at 
6; Peoples Natural Gas Company, No. 65 at 1; Northern Minnesota 
Utilities, No. 68 at 1; Minnegasco, No. 83 at 2; and Flair, No. 85 at 
2).
    The Department appreciates the data it received. The Department 
also obtained data on unit energy consumption by appliance type, 
principally from utility companies. The Department reviewed the data 
received from all sources and generated what it believes are the best 
estimates of energy consumption which are contained in the proposed 
test procedure amendments for mobile home furnaces, direct heating 
equipment, pool heaters and kitchen ranges and ovens discussed above, 
and were used in the analyses for today's notice.
    As noted above, regional energy prices were used in sensitivity 
analyses. Additionally, in the proposed test procedure amendments, the 
usage for mobile home furnaces and direct heating equipment have been 
modified from a national basis to a regional one to reflect the mostly 
regional distribution of these products.
Rebound Effect
    Two comments raised the issue of rebound effects, which occur when 
an appliance that is made more efficient is used more intensively, so 
that the expected energy savings from the efficiency improvement do not 
fully materialize. (American Council for an Energy Efficient Economy, 
No. 6 at 5; Washington Gas Light, No. 37 at 2). American Council for an 
Energy Efficient Economy commented that the consumer sees and reacts to 
his or her total utility bill, so any efficiency change in a particular 
product that has a small impact on his or her total utility bill should 
not affect usage behavior. Washington Gas Light suggested that usage 
elasticities should be decided by rigorous analyses of regional 
appliance usage characteristics.
    In this rulemaking, the rebound effects assumed were: 30 percent 
for direct heating equipment and mobile home furnaces, 20 percent for 
room air conditioners, and 10 percent for ranges and ovens. These 
percentages represent the amounts by which the potential energy savings 
from standards are reduced.
    There is, however, an argument that the usage elasticities/rebound 
effects for at least some household uses of energy may be substantial. 
Within a household, the price elasticity of demand will be an average 
of the elasticities of demand for each end use, e.g. appliance. For 
example, suppose the price elasticity of demand at the household level 
is .3. If some levels of appliance usage (say refrigerators) are 
insensitive to price changes, i.e., zero elasticity, then at least one 
other use must have an elasticity in excess of .3.
    If the usage elasticity for a product is identical to the price 
elasticity of demand for the energy the product uses, then it follows 
that the weighted average of the usage elasticities of all household 
uses must equal the household price elasticity of demand. Since the 
appliances subject to energy efficiency standards account for more than 
80 percent of household consumption, it would be unlikely that all 
appliances would have usage elasticities less that the overall 
household price elasticity of demand.
    According to the Energy Information Administration, the household 
price elasticity of demand for electricity is about .15 in the short 
run and upward of .7 in the long run. Thus usage elasticities, should, 
on average approximate these estimates. The Department seeks comments 
on this argument.
Marginal Electricity Rates
    American Council for an Energy Efficient Economy, Natural Resources 
Defense Council, and Washington Gas Light all urged the Department to 
use marginal electricity rates rather than average ones. (American 
Council for an Energy Efficient Economy, No. 6 at 6; Natural Resources 
Defense Council, No. 13 at 18; and Washington Gas Light, No. 37 at 3). 
American Council for an Energy Efficient Economy and Natural Resources 
Defense Council both stated that since room air conditioners are run 
disproportionately during periods of peak utility load (when rates are 
the highest), the use of average electricity rates will undervalue the 
electricity savings from improved efficiency.
    The Department agrees that use of average electricity prices can 
produce inaccuracies and does attempt to use energy prices specific to 
each end use. In the past, electricity rates have been assumed higher 
for air conditioning than for other end uses, based on survey data of 
consumer expenditures, disaggregated according to equipment ownership. 
The consumer analysis for this proposed rule continues to distinguish 
energy prices by end use, based on such survey results.
    Washington Gas Light added that in addition to using marginal 
electricity prices, the Department should use the All-Ratepayers Test 
when measuring the cost effectiveness of a standard level. This test 
was developed by the California Public Utilities Commission, and it 
measures the impact of an action on all ratepayers, including non-
participants in the conservation activity. (Washington Gas Light, No. 
37 at 13).
    In this program the Department examines the effect of energy 
conserved by each purchaser of a more efficient appliance, but does not 
examine the effects that the aggregate conservation effects would 
impose on the rates charged within a given utility. The impacts on any 
system's rates from increased energy standards would depend on the 
participation rates of its customers in the conservation activity and 
the particular financial position of the utility.
    Several comments discussed the impact of energy conservation 
standards on low-income people. (Rocky Mountain Institute, No. 15 at 2; 
Southern Union Gas Company, No. 46 at 1; Laclede, No. 55 at 5; Oklahoma 
Natural Gas Company, No. 57 at 5; and Public Service Company of North 
Carolina, Inc., No. 74 at 5). While the Rocky Mountain Institute stated 
that with improved energy efficiency, the prices of used appliances 
could be expected to decline in the short run, the other comments all 
stated that the higher prices that would be caused by improved 
efficiency standards on new units would have price-increasing effects 
on used appliances and, therefore, be harmful for lower-income and 
elderly consumers on fixed incomes.
    The Department conducted literature searches on purchasing and 
usage decisions in low-income households, to determine whether the 
inputs of the consumer analysis should be adjusted to account for 
differences between low- and average-income households. There was no 
information available on which to base any changes to the consumer 
analysis.
Lighting Prices
    Another consumer issue was raised by Valmont Electric, which stated 
that new energy conservation standards on fluorescent ballasts would 
raise the retail prices of such ballasts, thereby impeding the 
conversion from incandescent lighting to fluorescent lighting. (Valmont 
Electric, No. 16 at 2).
    Conversions from incandescent lighting to fluorescent lighting 
occurs principally through compact fluorescent bulbs, the ballasts of 
which are not included as part of the review of the legislated 
fluorescent ballast conservation standards. Any revised energy 
conservation standards on fluorescent ballasts will not affect the 
prices of compact fluorescent bulbs and thereby slow the conversion 
from incandescent to fluorescent lighting.
Heat Pump Water Heaters
    On the issue of consumer acceptance of heat pump water heaters, 
Crispaire Corporation stated that studies show consumer satisfaction 
with them. (Crispaire Corporation, No. 19 at 1). In addition, the 
company provided attachments with estimates of unit energy consumption 
and annual performance factors for heat pump and resistance water 
heaters.
    The Department appreciates the information provided and used the 
cited studies in developing data for the consumer analysis and 
forecasting efforts.
Appliance Lifetimes
    Two comments discussed product lifetimes. Wisconsin Blue Flame 
Council stated that pilot lights decrease condensate, thereby extending 
the tank life of gas water heaters. (Wisconsin Blue Flame Council, No. 
33 at 2).
    The Department based product lifetimes on an analysis comparing 
recent replacement sales to historical shipments, and researched the 
effects of particular design options on product life.
    Air Energy Heat Systems said that the lifetime of heat pumps for 
pool heaters is approximately the same as for air conditioning, if the 
water chemistry of the pool is maintained in proper balance. (Air 
Energy Heat Systems, No. 44 at 1).
    The Department did not analyze heat pump pool heaters because no 
test procedure is available.
Modeling
    There were several issues raised with regard to the forecasting 
efforts in the analyses. For example, Natural Resources Defense Council 
suggested that the Department model uncertainty, not point forecasts in 
economic growth and consumer choice and further suggested that the 
Department could model uncertainties in economic growth by modeling 
high-, mid-, and low-growth scenarios. (Natural Resources Defense 
Council, No. 13 at 35-36).
    The Department recognizes that all forecasts contain uncertainties. 
The principal method by which DOE has accounted for uncertainties has 
been through sensitivity analyses, which, in the past, have been 
performed on equipment prices, energy prices, projected equipment 
efficiencies and market discount rates (the last of which models 
uncertainties in consumer choices of efficiency).
    The Department favors an explicit representation of the uncertainty 
in the forecasts. Clearly, the best representation would be a 
statistical treatment of the uncertainty in each of the important 
variables, including the coefficients used in the Lawrence Berkeley 
Laboratory Residential Energy Model. At this time, however, such a 
specification of the distribution of each of the variables and 
coefficients does not exist. As the Lawrence Berkeley Laboratory 
Residential Energy Model is updated, such distributions will be 
generated, which will allow the Department to work towards the 
capability to perform an uncertainty analysis in the model. Until then, 
the Department will model uncertainties with sensitivities.
    On the other hand, Natural Resources Defense Council endorsed the 
Department's different assumptions used when calculating energy savings 
and net present value. (Natural Resources Defense Council, No. 13 at 
36).
    For this rulemaking, the Department maintained the current 
methodologies for calculating energy savings and net present value.
Ballast Energy; Use Forecasting
    Advance Transformer Company recommended that the Department exclude 
fluorescent lamp ballasts from incorporation in the Lawrence Berkeley 
Laboratory Residential Energy Model because of their small number of 
sales in the residential sector. (Advance Transformer Company, No. 25 
at 3).
    The Department did exclude fluorescent lamp ballasts from 
incorporation in the Lawrence Berkeley Laboratory Residential Energy 
Model. Instead, the Department analyzed fluorescent lamp ballasts in 
the commercial sector using the Electric Power Research Institute end-
use model and the Commercial Energy End-Use Model.
Television Sets
    With regard to television power and usage forecasts, the 
Electronics Industries Association stated that television sets of newer 
vintage draw less power than those of older vintage. To support this, 
Electronic Industries Association presented data for the period 1967-
1991. (Electronic Industries Association, No. 30 at 2).
    Thomson Consumer Electronics, Inc. provided data on the energy 
consumption of color televisions by size, and asserted that the most 
important factor in energy usage is viewing habits, specifically, the 
number of concurrently operating televisions in a household, the number 
of daily operating hours for each receiver, and control settings, i.e., 
brightness and sound levels. (Thomson Consumer Electronics, Inc., No. 
49 at 3-5).
    The Department welcomes the additional data provided in the 
comments. The Department agrees that the energy consumption of a 
television set is a function of vintage. It was included in a previous 
analysis\9\ and is included in the analysis for this proposed rule.
---------------------------------------------------------------------------

    \9\U.S. DOE Technical Support Document: Energy Conservation 
Standards for Consumer Products: Refrigerators, Furnaces, and 
Television Sets, DOE/CE-0239, November 1988.
---------------------------------------------------------------------------

    The Department also agrees that the number of television sets per 
household and number of viewing hours are determinants of energy usage, 
and included these factors in its forecasts. On the other hand, while 
the Department recognizes that control settings are important, it does 
not expect them to be different in the future than from today, and, 
therefore, it did not forecast them.
Lawrence Berkeley Laboratory Residential Energy Model
    Two comments addressed the Lawrence Berkeley Laboratory Residential 
Energy Model methodology and documentation. Whirlpool Corporation 
stated that it had no strong concerns with the Lawrence Berkeley 
Laboratory Residential Energy Model at this time. (Whirlpool 
Corporation, No. 31 at 1). The Florida Energy Office said that the 
Department should document, well before the final rule, all model 
assumptions. In addition, the Florida Energy Office offered to provide 
Florida-specific data to the Department. (Florida Energy Office, No. 42 
at 2, 6).
    The Department will continue to use the basic Lawrence Berkeley 
Laboratory Residential Energy Model methodology, but will incorporate 
updates to data and coefficients for specific products as new analyses 
proceed. The model assumptions and data for this rulemaking are 
documented in the Technical Support Document accompanying this proposed 
rule.
Lawrence Berkeley Laboratory-Manufacturer Impact Model
    1. Modeling. There were numerous comments on the manufacturer 
impact analysis. The Association of Home Appliance Manufacturers and 
Whirlpool Corporation made several suggestions for improving the 
modeling of manufacturer impacts.
    The Association of Home Appliance Manufacturers suggested that the 
Department devote more modeling efforts to developing demand curves 
that are empirically verifiable. (Association of Home Appliance 
Manufacturers, No. 61A at 66).
    In response, the Department notes that many of the demand curves 
used in the Lawrence Berkeley Laboratory-Manufacturer Impact Model were 
derived from those that were empirically estimated by Oak Ridge 
National Laboratory in 1976.\10\ The Department recognizes that a 
project to update the demand curves could be useful, considering the 
age of the data currently being used. The Department does not believe 
that such data exist. However, the Department requests that if such 
data does exist that it be submitted as comment on today's proposed 
rule.
---------------------------------------------------------------------------

    \10\Lin, Hirst, and Colon, Fuel Choices in the Household Sector, 
ORNL Report Con-3 Oak Ridge National Laboratory, 1976.
---------------------------------------------------------------------------

    2. Product mix. The Association of Home Appliance Manufacturers 
stated that the Lawrence Berkeley Laboratory-Manufacturer Impact Model 
should, but does not, take into account the effect that standards have 
on the relative prices among product classes, which in turn will change 
the product mix demanded by the market. (Association of Home Appliance 
Manufacturers, No. 61A at 67).
    The Department did take cross-elasticity effects into account in 
the analysis of water heaters (between electric and gas fuels) where 
they were particularly important, and will continue to look for 
instances where such effects may arise in order to take those effects 
into account as warranted. (See Technical Support Document, Volume F, 
Appendix B).
    3. Market power. The Association of Home Appliance Manufacturers 
was critical of the way the Department models marketplace monopsony 
power, i.e., the market power of purchasers. In its critique, the 
Association of Home Appliance Manufacturers stated that the ability of 
manufacturers to pass on increased costs to the consumer is limited 
because their customers are primarily a group of large and 
sophisticated retailers who have significant and increasing power in 
the marketplace, and who exert downward pressure on the retail prices 
of appliances. It further stated that the Lawrence Berkeley Laboratory-
Manufacturer Impact Model attempts to model the situation by modeling a 
larger number of manufacturers than actually exist in the marketplace. 
The Association of Home Appliance Manufacturers said that no 
theoretical underpinnings were given for this assertion and that there 
is no reason why the predictions of this ``false model'' should have 
any resemblance to what actually transpires in the real world. 
(Association of Home Appliance Manufacturers, No. 61A at 67-68).
    The Department believes that oligopsony power itself could probably 
be modeled analogously to oligopoly power. There is, however, no 
accepted theory on the modeling of an industry characterized by both 
oligopoly and oligopsony. Thus, DOE detailed the assumptions and 
relevant mathematical derivations of the approach in the aforementioned 
Technical Support Document for the final rule for dishwashers, clothes 
washers, and clothes dryers. The approach is to increase the number of 
firms input into the Lawrence Berkeley Laboratory- Manufacturer Impact 
Model until the markups that are actually observed in the marketplace 
are achieved; this is also an obvious implication of The Association of 
Home Appliance Manufacturers's comments that manufacturers' ability to 
pass on costs is limited. In fact, the most prominent comments from a 
review panel on the Lawrence Berkeley Laboratory-Manufacturer Impact 
Model indicated a concern that the modeling assumptions had gone too 
far in the direction of reduced markups.\11\
---------------------------------------------------------------------------

    \11\Lawrence Berkeley Laboratory, Manufacturers Impact Model 
(MIM) External Review Panel Meeting, January 11, 1990.
---------------------------------------------------------------------------

    4. Individual firm. There were also three comments critical of the 
Department's modeling of an individual firm. It was argued that the use 
of a ``typical firm'' does not address the differential impacts of 
standards on companies, e.g., sizes, costs, niche markets. The 
Association of Home Appliance Manufacturers insisted that the 
Department could address the lack of data in performing this type of 
analysis by researching the economic literature or by developing an 
economic theory of how different classes of manufacturers would be 
affected by standards. Whirlpool Corporation suggested addressing the 
data problem by putting a range on the cost and margin data. (Advance 
Transformer, No. 25 at 3; Whirlpool Corporation, No. 31 at 1; 
Association of Home Appliance Manufacturers, No. 61A at 68-69).
    The problem is essentially a lack of data. The Department's review 
of the economic literature offered no solution to this problem. The 
Department does analyze the cost and margin data (in addition to other 
parameters) by performing a sensitivity analysis where the Department 
changes those parameters (and others) in the model, and tests the 
sensitivity of the model's results.
    During interviews conducted with manufacturers, the Department 
asked a series of questions covering the effects of firm size and 
specialization. To date, DOE has not been given information by the 
industry to draw conclusions about probable effects.
    While it would be desirable to analyze the impact of standards on 
the distribution of firms in an industry, fundamentally, this requires 
detailed information on how individual firms differ from the norm.
    Stating that the primary concern to manufacturers is the short-run 
industry impact from standards, Whirlpool Corporation and the 
Association of Home Appliance Manufacturers called for the Department 
to present greater focus on, or explanation of, short-run impacts. 
(Whirlpool Corporation, No. 31 at 1; Association of Home Appliance 
Manufacturers, No. 61A at 69-70).
    There are limitations to such an analysis. While general impacts 
may be understood, the specific details of how each firm reacts at each 
point of the short-run adjustment process are beyond the ability of 
economic theory to elucidate. The Department believes that it has 
treated the short run properly by modeling it on the short-run impact 
of the downturn from a business cycle. In addition, in considering 
standard levels to propose, the Department did take explicit account of 
the short-run Lawrence Berkeley Laboratory-Manufacturer Impact Model 
results.
    The Association of Home Appliance Manufacturers suggested that more 
detailed analysis of the impacts on individual firms and other areas 
should be done. The Association of Home Appliance Manufacturers 
commented that an analysis of how industry will fare, on average, 
belies the very serious effects that adjustment can have, especially if 
standards force a company in a small community to close. Therefore, it 
is important, the Association of Home Appliance Manufacturers believes, 
that DOE evaluate these potential short-term and individual company 
impacts. (Association of Home Appliance Manufacturers, No 61A at 70).
    In the analyses to date, the Department has used industry 
profitability as the best single indicator of plant closures and other 
significant disruptions on manufacturers. Further, the primary impact 
variables of returns on equity, net income, revenue, price, and 
shipments have been presented as the best summary statistics with which 
to capture the significant impacts resulting from standards.
    5. Multiple standards. In another comment, the Association of Home 
Appliance Manufacturers stated that firms face constraints on the share 
of their resources that can be devoted to meeting each new wave of 
conservation standards from DOE. The cumulative impact of each new 
rulemaking on manufacturers' resources must be considered in evaluating 
manufacturer impacts. (Association of Home Appliance Manufacturers, No. 
61A at 70-72).
    The Lawrence Berkeley Laboratory-Manufacturer Impact Model is 
designed to analyze the impact of standards on industry profitability 
for an individual appliance. To date, this has involved treating each 
manufacturer of a subject product as a separate company. Recognizing, 
however, that many of the manufacturers produce more than one appliance 
type subject to these rulemakings, and recognizing that those companies 
may have limited resources to comply with the requirements of all of 
the relevant regulations, the Department is presently seeking 
approaches to account for the cumulative effects on a multi-product 
company of the appliance conservation standards that it promulgates and 
requests comments in this regard.
    6. Variable costs. On another manufacturer issue, Whirlpool 
Corporation criticized the Department's assumption that pricing relates 
only to variable costs. Whirlpool Corporation suggested, instead, that 
changes in fixed costs do have an impact on pricing in an industry. 
(Whirlpool Corporation, No. 31 at 1).
    The Department acknowledges that firms may try to pass on fixed 
costs; however, standard economic theory concludes that even 
monopolists will find this unprofitable, and will eventually decide not 
to try it. The Department has seen no argument or evidence to the 
contrary. It is interesting to note that if Whirlpool Corporation were 
correct, the manufacturers who decided to do so would be impacted far 
more favorably by standards than the Lawrence Berkeley Laboratory-
Manufacturer Impact Model predicted.
Consumer Demand
    Whirlpool Corporation stated the Department assumes that consumers 
will pay more for energy efficiency. Whirlpool Corporation claims 
studies have shown this has not been true. In support, Whirlpool 
Corporation supplied a list of 20 key buying factors from an August 
1988 McKinsey study. Energy efficiency placed tenth in consideration 
for kitchen products. (Whirlpool Corporation, No. 31, at Attachment 2).
    The Department notes that energy efficiency placed ahead of other 
factors such as ``lowest price available among similar makes and 
models,'' ``has an extended service agreement at a fair price,'' and 
``runs quietly.'' These results tend to support the Department's 
position that consumers are willing to pay for energy efficiency.
Rebuttable Presumption
    For consideration of rebuttable presumptions, the Association of 
Home Appliance Manufacturers stated that incremental payback, not 
cumulative payback, are the appropriate payback for standards. 
(Association of Home Appliance Manufacturers, No. 61A at 64).
    Since the legislation requires that payback be considered from a 
standard level compared to the base case, DOE believes that only 
cumulative payback may be used for the rebuttable presumption 
determination. Additionally, the other impacts of appliance 
conservation standards on energy use, consumers, manufacturers, and 
other factors were determined by comparing projections under the base 
case\12\ with the projections under the proposed standards.
---------------------------------------------------------------------------

    \12\The base case assumes implementation of the conservation 
standards that were set by the Act for central air conditioners and 
central air conditioning heat pumps and furnaces and by Department 
of Energy rulemaking in the case of refrigerators-freezers and 
freezers and small gas furnaces.
---------------------------------------------------------------------------

Standards Decision Making
    Natural Resources Defense Council and the Rocky Mountain Institute 
addressed the Department's standards selection criteria. Both Natural 
Resources Defense Council and the Rocky Mountain Institute stated that 
in deciding the economic justification of standards, the Department 
should not be attempting to maximize the economic benefits to 
consumers, but should instead be maximizing energy savings. (Natural 
Resources Defense Council, No. 13 at 16; Rocky Mountain Institute, No. 
15 at 2).
    In response, the Department recognizes that the basic statutory 
direction to set standards is to achieve the ``maximum improvement in 
energy efficiency that the Secretary determines is technologically 
feasible and economically justified'' (section 325(l)(2)(A). DOE notes 
that the economic impact of standards on consumers is only one of the 
factors the Department considers in reaching its decision to set 
conservation standards. Other factors include impacts on manufacturers 
and on national benefits and costs. However, regarding consumer 
benefits, while the minimum consumer life-cycle cost point is selected 
as a trial standard level, and in many cases, the most stringent 
standard level that the Secretary determined was economically justified 
coincided with that level, several of the proposed standard levels have 
life-cycle costs that exceed the minimum life-cycle cost. Thus, 
maximizing consumer benefits does not take precedence over maximizing 
energy savings.
    Natural Resources Defense Council further stated that in deciding 
on standard levels, the Department must first consider the most 
stringent level of efficiency, i.e., the ``max tech'' level, and if it 
is economically justified, DOE must set the standard at that level. If 
it is not economically justified, DOE must then consider the next most 
stringent level, and if economically justified, set the standard at 
that level. (Natural Resources Defense Council, No. 13 at 17).
    The Department does consider candidate standard levels in this 
manner. However, in making its determination as to whether a standard 
is economically justified, the Department considers both: The benefits 
and costs of the standard level under consideration relative to the 
base case; and how these benefits and costs compare to the benefits and 
costs of other standards analyzed by the Department in the technical 
support document for this rule.
    Currently the costs and benefits of all candidate standard levels 
are analyzed in comparison to the base case. However, it is possible 
that more direct comparisons of the impacts of different standard 
levels may be useful. In light of the above, the Department 
specifically solicits comment on whether any incremental perspectives 
would be useful and valid in the determination as to whether a 
particular standard level is ``economically justified.''
    The Florida Energy Office stated that after considering all 
relevant costs and benefits over the life of the appliance, the 
Department should set standards at the highest levels that are cost-
effective to the nation. (Florida Energy Office, No. 42 at 1).
    As stated above, consideration of the national costs and benefits 
of the impacts of candidate standard levels was one of the factors 
considered in this rulemaking. (See Technical Support Document, Chapter 
8.)
External Costs and Benefits
    A number of comments on the Advance Notice of Proposed Rulemaking 
urged the Department to consider the external costs and benefits in its 
economic analyses of the efficiency standards proposed in this Notice 
of Proposed Rulemaking. For example, the American Council for an Energy 
Efficient Economy suggested that DOE account explicitly for 
environmental costs in its economic analysis. (American Council for an 
Energy Efficient Economy, No. 6 at 6.) In addition, Public Citizen 
stated that the Department should include in its analyses all external 
costs and benefits, e.g., environmental quality, national security, and 
reduced energy imports. (Public Citizen, No. 7 at 4.)
    The Sierra Club stated that the difference between ``Consumer 
Analysis'' and ``Life-Cycle Cost Analysis'' is difficult to ascertain. 
They urged DOE to evaluate, as part of the Consumer Analysis; (a) 
environmental external costs; and, (b) national security and balance-
of-payments costs of increased/decreased oil consumption. (Sierra Club, 
No. 43 at 2.)
    The Ohio Office of the Consumers' Council said that the consumer 
and utility analyses should include monetization of externalities 
(environmental and security) such as sulfur oxides, carbon monoxide, 
carbon dioxide, nitrogen oxides, particulate, and other air, water, and 
land use impacts of energy production and use. Such considerations 
should be consistent with current trends in state utility regulations. 
(Ohio Office of the Consumers' Council, No. 60 at 2.)
    The Department recognizes that appliance standards may generate 
external societal benefits arising from reductions in oil imports, and 
emissions of SO2, NOx, and CO2 and perhaps other 
pollutants. In this proposed rulemaking, as in previous rulemakings, 
the Department derives the quantities of oil savings and emissions 
reductions associated with the estimated energy demand reductions 
expected to result from the proposed standards, but does not attach any 
externality values to these benefits. In a separate Advance Notice of 
Proposed Rulemaking for three products (58 FR 47326, September 8, 
1993), the Department has indicated that it would be desirable to 
establish monetary values for these external benefits, if sound 
analytical bases can be found for doing so. The Department will attempt 
to develop and use such monetary values in the analysis of the likely 
impacts of updated standards for these three product categories. 
However, because there is no consensus on how to undertake the analysis 
underlying estimates of such environmental and energy security 
externalities, the Department is not yet able to set monetary values 
for such externalities accurately enough to be useful in the current 
rulemaking.
Standards
    1. Regional standards. On another standards determination issue, 
the Association of Home Appliance Manufacturers stated opposition to 
the setting of regional standards for room air conditioners. 
(Association of Home Appliance Manufacturers, No. 61A at 22.)
    The Department is not setting regional standards, but did conduct a 
sensitivity analysis on life-cycle cost for room air conditioners 
because their energy use is affected by climate. The sensitivity 
analysis considered regional energy prices and usage.
    2. Corporate average fuel economy. The Rocky Mountain Institute 
stated that the Corporate Average Fuel Economy standards for 
appliances, like the Corporate Average Fuel Economy for automobiles, 
could allow for the gradual phase-in of technologies that are 
substantially different from the present, less-efficient technologies, 
e.g., horizontal-axis clothes washers and heat pump water heaters. 
(Rocky Mountain Institute, No. 15 at 3.)
    The Department acknowledges that some stringent standard levels 
could involve radical industry manufacturing changes and recognizes 
that a Corporate Average Fuel Economy-type approach to such standards 
could help to ease industry's transition to producing these more 
efficient appliances. The Department believes, however, that the Act 
precludes that option since the statute requires any covered product to 
meet the energy conservation standard.
    3. Fuel switching. Several of the comments in this area dealt with 
the standards selection criteria for specific products. For example, 
Peoples Natural Gas Company stated a concern that standards could 
unintentionally increase energy consumption by forcing a switch from 
gas water heaters to electric. Peoples Natural Gas Company recommended 
limiting standards-induced price increases to consumers for gas water 
heaters to 120 percent of the standards-induced price increases for 
electric resistance water heaters. Peoples Natural Gas Company 
contended that this would avoid switching from gas to electric by 
price-sensitive consumers, such as home builders and low-income 
homeowners. (Peoples Natural Gas Company, No. 28 at 1).
    In response, the Department analyzed standard levels by the 
methodology proposed in the September 1990 advance notice, wherein fuel 
switching was accounted for as part of the Lawrence Berkeley Laboratory 
Residential Energy Model's forecasting of economic impacts. While some 
fuel switching did occur (electric water heaters are projected to 
increase their share of the market from 45.5 percent to 50.3 percent, 
as shown by Table 3.4 of Volume F of the Technical Support Document), 
the Department does not believe it occurred because of the relative 
equipment price increases since the price of electric water heaters are 
projected to increase much faster than that of gas, as presented in 
Section IV below. The Department ascribes the fuel switching that is 
projected to occur to the relative increase in the price of gas 
compared to electricity as shown in Table 5.5 of Volume A of the 
Technical Support Document.
Impacts on Manufacturers
    The Association of Home Appliance Manufacturers contracted with 
Arthur D. Little, Inc. to prepare a report on the Department's analysis 
of top-loading, horizontal-axis clothes washers. In that report, 
entitled ``Financial Impact of DOE Top-Loading Horizontal Axis 
Standards on U.S. Washing Machine Manufacturers,'' Arthur D. Little 
listed a number of criticisms of the Lawrence Berkeley Laboratory-
Manufacturer Impact Model and suggested that the Department use a 
``Cash Flow Model,'' instead. (Association of Home Appliance 
Manufacturers, Nos. 61D and 61E). Although clothes washers have been 
dropped from this rulemaking, as discussed below, many of Arthur D. 
Little's comments have general applicability to the other appliances.
    One of Arthur D. Little's criticisms of Lawrence Berkeley 
Laboratory- Manufacturer Impact Model involved that model's consumer 
preference assumptions. Arthur D. Little stated, ``The combination of 
price and energy savings account for under two-thirds of the basis of 
selection. Thus, the Manufacturer Impact Model at best is taking into 
account a little less than two-thirds of the consumer's decision to 
purchase.'' Arthur D. Little concluded, ``neglected features seriously 
distort the prediction of consumer's * * * well being.'' (Association 
of Home Appliance Manufacturers, No. 61E at 25.)
    The Department intends to set standards that do not reduce consumer 
utility, a gauge of well being, by establishing product classes that 
protect utility. While utility is sometimes a matter of degree, instead 
of an open and shut case, the basic concept is the establishment of 
classes that protect a less efficient, but desirable, feature such as 
the through-the-door ice service for refrigerators. Since the 
establishment of classes is performed before the manufacturer impact 
analysis, it is appropriate for the Lawrence Berkeley Laboratory-
Manufacturer Impact Model to assume there is no difference in consumer 
utility between an appliance meeting the different trial standard 
levels. Furthermore, since standards are intended to affect only an 
appliance's energy efficiency (which usually is positively related to 
price), modeling consumer response only to changes in those variables 
is reasonable.
    The Arthur D. Little report was also critical of the Lawrence 
Berkeley Laboratory-Manufacturer Impact Model's treatment of market 
power issues. The report stated that the manufacturer analysis 
concludes that manufacturers can set their own prices because the 
manufacture of the product is concentrated in the hands of a small 
number of producers. (Association of Home Appliance Manufacturers, No. 
61E at 27.) Furthermore, the report asserted that within the Lawrence 
Berkeley Laboratory-Manufacturer Impact Model, mark-up is countered 
only by a very weak consumer reaction, as measured by the elasticity of 
demand relative to the purchase price of the appliance and its 
operating expense. (Association of Home Appliance Manufacturers, Id.)
    A major difference that exists in the manufacturer impact analysis 
performed for today's notice and typical manufacturer experience to 
increasing prices is that the analysis assumes that all manufacturers 
in the industry will have to increase prices to meet the standard. This 
is a very different scenario from an individual firm raising its prices 
independently from its competitors. To accomplish the analysis, the 
Lawrence Berkeley Laboratory-Manufacturer Impact Model uses two 
elasticities; an individual firm elasticity, which is used to establish 
price, and an industry elasticity, which is used to establish sales. 
The individual firm elasticity used by the Lawrence Berkeley 
Laboratory-Manufacturer Impact Model is greater than the industry 
elasticity, and is such that if a firm raises prices it loses sales. It 
is this price elasticity faced by the individual firm that determines 
how much the firm can mark up price. However, the initial effect of 
this elasticity is tempered in the model by the fact that the firm's 
competitors are also raising prices until equilibrium is reached 
between increased costs to meet the standard and increased prices. The 
consumer reaction to this higher price is then calculated by the 
industry elasticity, which is the consumers' responsiveness to having 
the appliance or not, as opposed to buying it from a competing seller 
for less. Since the Department considers the whole industry to be 
affected by standards, a resulting rise in the general level of prices 
for an appliance would likely have a relatively weak aggregate consumer 
reaction.
    In addition, the Department notes that in Arthur D. Little's own 
``cash flow'' model, long-run sales of appliances are seemingly 
unaffected by price; Arthur D. Little has assumed there is no consumer 
reaction to price, or in other words, a price elasticity of zero.\13\
---------------------------------------------------------------------------

    \13\This result may be found by examining Appendix C of the ADL 
report which contains the results of its cash flow model. In it, two 
cases are discussed: a constant volume case and a variable volume 
case. The distinction between the two is that in the former, 
production volume is assumed to be constant for each year, while in 
the latter, volume is constant for each year until 1997 (two years 
before standards when, presumably, sales rise in anticipation of 
higher prices) through 2003. The volume then goes back to the same 
constant level in 2004. Thus, the results indicate that consumers 
respond to the coming price increase, but after six years, their 
demand falls back to the original level, despite the higher price. 
Thus, aside from a short run effect over a six-year period, the 
price elasticity of demand is zero.
---------------------------------------------------------------------------

    This assumption would imply that manufacturers were completely free 
to set price at any level they wanted.
    Another area in which the Arthur D. Little report was critical of 
the Lawrence Berkeley Laboratory-Manufacturer Impact Model was in the 
treatment of dynamic adjustment issues. As Arthur D. Little's report 
stated, ``To determine the impact on manufacturers, the Manufacturer 
Impact Model only examines two static cases * * * and misses important 
changes in the health of the industry [during the adjustment period].'' 
(Association of Home Appliance Manufacturers, Id.).
    The ``two static cases'' to which Arthur D. Little is referring are 
the base and standards cases. However, Arthur D. Little is incorrect in 
stating that these two cases are static. As is documented in the 
Technical Support Document, the Lawrence Berkeley Laboratory-
Manufacturer Impact Model also computes a short-run analysis, the sole 
purpose of which is to assess the dynamic impact of standards, in 
addition to computing the long-run analysis to determine the impacts 
after those dynamic impacts have been absorbed. The dynamic effect that 
is captured with the Lawrence Berkeley Laboratory-Manufacturer Impact 
Model short-run analysis is the extra price competition that may occur 
when the quantity demanded is suddenly reduced by the standards-induced 
price increase. This dynamic effect generally results in lower 
profitability over the short-run, as compared to over the long-run, 
especially at the higher standard levels as reported in Section IV 
below. This effect is completely ignored by the Arthur D. Little model 
with its zero price elasticity. However, Arthur D. Little does address 
a different dynamic effect which the Lawrence Berkeley Laboratory-
Manufacturer Impact Model does ignore.
    The dynamic effect addressed by Arthur D. Little is the forward 
time- shifting of appliance purchases in anticipation of a standards-
induced price increase. The Department has been aware of this for some 
time, but has not incorporated it into the Lawrence Berkeley 
Laboratory-Manufacturer Impact Model because of a lack of data on the 
extent of purchase time-shifting.
    Additionally, the Department believes that any effect of time-
shifting is initially positive and then negative. When appliances are 
bought in advance of standards, the initial effect probably would be to 
improve profits and cash flow. When the quantity demanded falls 
temporarily after standards, the effect probably would be to hurt 
profits and cash flow. These two effects very nearly should cancel over 
time. The Department notes that this result is in sharp contrast to the 
dynamic effect that the Lawrence Berkeley Laboratory- Manufacturer 
Impact Model does consider, which has a non-recoverable impact on the 
industry. Nonetheless, DOE agrees that time-shifting could bear further 
investigation and will evaluate whether the estimates supplied by 
Arthur D. Little on the magnitude of time-shifting can be of use.
    Arthur D. Little also was critical of the Lawrence Berkeley 
Laboratory- Manufacturer Impact Model's inability to take into account 
(or try to predict) some of the consequences of the low profitability 
that the model sometimes predicts. In particular, its report points out 
that if the rate of profit did decline significantly in real terms, the 
industry would have a very hard time raising additional equity. Arthur 
D. Little points out that, in actuality, both owners and financial 
backers of firms would limit capital until expected return matched 
their required return. According to the comment, the Lawrence Berkeley 
Laboratory-Manufacturer Impact Model, therefore, ``* * * sacrifices 
realism in modeling the relationship between expected return and the 
willingness of owners and financial backers to commit capital for 
retooling.'' (Association of Home Appliance Manufacturers, No. 61E at 
27-28.)
    The Department agrees with Arthur D. Little's statement regarding 
the difficulty that industry likely would have in raising capital as a 
consequence of significantly reduced profitability. Furthermore, it is 
true that the Lawrence Berkeley Laboratory-Manufacturer Impact Model is 
limited to estimating the impact of potential standards on an industry, 
whether positive or negative, as characterized by profitability. The 
model does not attempt to predict the specific forms of the damage and 
the complex reactions (inability to raise capital, failures of some 
firms, foreign buy-outs, mergers, capacity reductions, etc.) that could 
occur within a negatively affected industry. However, the Department 
does not believe that it is necessary to attempt to predict that sort 
of detail. Rather, DOE believes it is obligated not to set standards 
that would cause serious damage.
    The Department believes that the magnitude of the hypothetical 
profit loss is a very good indicator of the magnitude of the impacts 
that will be imposed on the industry. When the Lawrence Berkeley 
Laboratory-Manufacturer Impact Model predicts a precipitous decline in 
profit, this should be interpreted as damaging to the industry. Indeed, 
in many cases, as discussed in Section IV below, the Lawrence Berkeley 
Laboratory-Manufacturer Impact Model does predict a sharp drop in 
profitability, and this prediction figures strongly in rejecting the 
standard in question.
    Because of all the ``deficiencies'' in the Lawrence Berkeley 
Laboratory- Manufacturer Impact Model, Arthur D. Little's report 
suggested that the Department abandon the model, and proposed, instead, 
that the Department use a cash-flow model. The cash-flow model 
determines the economic impact of energy conservation standards on 
manufacturers by estimating the cash flows associated with meeting the 
standards, and calculating a value for those cash flows. (Association 
of Home Appliance Manufacturers, No. 61E at 19 and Appendix C.)
    However, Arthur D. Little's cash-flow model submitted does not 
predict whether a manufacturing industry will or will not be hurt by 
standards. It allows one to make various assumptions about the market's 
behavior, and then to predict the impact of those assumptions on cash 
flow; but, it tells nothing about the market's behavior. As a result, 
the Department notes that Arthur D. Little has run three scenarios with 
radically different implications for the industry, with no way to 
choose among them. The model is equally capable of processing the 
optimistic and the pessimistic scenario, but it does not have an 
expected scenario. The Department, therefore, does not believe that the 
cash flow model, as presented in Association of Home Appliance 
Manufacturers's comments, could serve to replace the Lawrence Berkeley 
Laboratory-Manufacturer Impact Model for use in the analyses of the 
impacts of appliance standards on manufacturers.
    However, the Arthur D. Little report also stated that one of the 
key assumptions in the Lawrence Berkeley Laboratory-Manufacturer Impact 
Model is the proportion of costs that are fixed. The Arthur D. Little 
report went on to state that, ``After interviewing all five domestic 
manufacturers, Arthur D. Little was unable to verify that the washing 
machine manufacturers have any sense as to the proportion of their 
costs which are long-term fixed costs * * *. Basing a model upon an 
assumption that is not empirically verifiable is a risky proposition.'' 
(Association of Home Appliance Manufacturers, Id.)
    The Department agrees that one of the key assumptions in the 
Lawrence Berkeley Laboratory-Manufacturer Impact Model is the 
proportion of costs that are fixed and variable. The Department is 
sensitive to the claim that this key input parameter to the Lawrence 
Berkeley Laboratory-Manufacturer Impact Model is ``completely alien to 
manufacturers.'' The Department would certainly consider alternate 
manufacturer impact models that utilize more known and verifiable 
inputs. However, to be an acceptable alternative model, the Department 
believes that such model would have to have forecasting ability similar 
in scope and sophistication as the Lawrence Berkeley Laboratory- 
Manufacturer Impact Model. As discussed above, the cash-flow model 
submitted by the Association of Home Appliance Manufacturers does not 
meet this test. Additionally, the Department would be interested in any 
analyses that indicate adverse manufacturer impacts at any of the 
proposed standard levels, as opposed to arguments over the severity of 
the adverse impact of rejected standard levels.
Impacts on Utilities
    Several comments addressed the Department's proposed analysis of 
the impacts of energy conservation standards on electric utilities. 
Natural Resources Defense Council stated that the utility analysis 
needs to consider that under the base cases, there will be less 
forecasting certainty than would occur under new and revised standards, 
and a greater probability that utilities would misforecast electricity 
demand. (Natural Resources Defense Council, No. 13 at 32). The Ohio 
Office of the Consumers' Council also suggested that the utility 
analysis should consider the value of reduced uncertainty in utility 
forecasts as a result of standards. In addition, the Ohio Office of the 
Consumers' Council gave references to a methodology. (Ohio Office of 
the Consumers' Council, No. 60 at 6).
    Increased demand certainty after standards is an effect that was 
not captured in the utility analysis. It results in substantial 
benefits to electric utilities, particularly when demand growth is 
rapid. These benefits accrue because demand growth is uncertain, and if 
the utility misforecasts demand, it may build too few or too many power 
plants. This risk of capital misallocation can be substantial in 
certain cases.
    With regard to the appropriate measure of dollars to use in the 
utility impact analysis, Natural Resources Defense Council stated that 
``DOE needs to do the utility impact analysis in nominal dollar terms, 
using actual utility assumptions for depreciation and rate of return. 
Utility rates and finances are computed in nominal dollars, not real 
dollars, and this can have a dramatic impact on how new power plant 
construction will affect rates.'' (Natural Resources Defense Council, 
No. 13 at 32).
    It is true that utilities calculate rates in nominal dollar terms. 
The Department, therefore, calculated utility impacts in both real and 
nominal dollars, in order to determine how adding an inflation factor 
would affect the results.
    With regard to the Clean Air Act Amendments of 1990 (Pub. L. 101-
549, November 15, 1990), Natural Resources Defense Council stated that 
utility expansion plans will need to be consistent with the Act, which 
will require more controls as the demand for electricity grows. 
Appliance standards will, all other things being held equal, make 
compliance with the Clean Air Amendments less expensive for utilities, 
as it allows them to meet the cap on emissions more easily. (Natural 
Resources Defense Council, No. 13 at 32, 35).
    The utility analysis and the environmental analysis are consistent 
with the 1990 Clean Air Act Amendments. The Department collected 
forecasts of the value of marketable permits for sulfur, estimates of 
the other effects of the Clean Air Act Amendments, and assessments of 
future utility generation by fuel type. The Department assessed these 
estimates and assimilated them into the analysis. (See Technical 
Support Document, Environmental Assessment, Section 2).
    The Florida Energy Office stated that capacity cost credit (for 
avoided capacity) should not be limited to combustion turbines but 
should match the load characteristics of the subject appliance, 
categorized into peaking, intermediate, and baseload groups. Air 
conditioners should be categorized according to their load duration 
characteristics. (Florida Energy Office, No. 42, at 2).
    The Department agrees that load shape characteristics should be 
included in an assessment of air conditioner (and other appliances) 
avoided peak demand. The current utility analysis accounted for these 
effects. The Department investigated separating energy savings into 
peaking, intermediate, and baseload categories, to determine if this 
would have a significant effect on the results. The utility analysis 
assumed a combustion turbine proxy, which values all peak demand 
savings at the cost of a combustion turbine. This is the most widely 
used approach by U.S. utilities.
    The Ohio Office of the Consumers' Council stated that the utility 
analysis should consider transmission and distribution capacity 
savings. (Ohio Office of the Consumers' Council, No. 60 at 5).
    The Department agrees that transmission and distribution capacity 
savings should be included in the utility analysis, and did include 
them. Avoided transmission and distribution costs were based on the 
value assigned to this avoided transmission and distribution capacity 
by many different U.S. utilities.
    Two commentators stated that off-peak water heaters (those that 
heat water only during off-peak hours) save energy, and that this 
should be included in the utility analysis. (National Regional Electric 
Cooperative Association, No. 17 at 1; Vaughn Manufacturing Company, No. 
75 at 1).
    In response, the Department notes that where utilities offer time-
of-day rates, the economics of off-peak water heating change 
dramatically and may be very attractive. However, the Department does 
not have the authority to require utilities to offer such rates, and 
believes the lack of these rates offered nation-wide precludes 
consideration of off-peak water heaters in a national standard.
    Several comments discussed the impacts of appliance conservation 
standards on natural gas utilities. The Washington Gas Light, Inc. 
urged the Department to dedicate a similar level of analytical effort 
to the utility cost consequences of standards on natural gas appliances 
as it devotes to impacts on electric utilities from standards on 
electric appliances. (Washington Gas Light, Inc., No. 37 at 12).
    The Department initially studied the potential impacts of standards 
on electric utilities and not natural gas utilities because there were 
more abundant data on the former. Furthermore, significantly more 
residential energy consumption is electricity rather than natural gas.
    Nevertheless, the Department recognizes that for analytical 
completeness, it should conduct studies on the potential impacts of 
standards on natural gas utilities. Accordingly, DOE is now examining 
methodologies and data sources that will enable it to conduct such 
studies. The Department, therefore, welcomes submittals of relevant 
information and data in this regard.
    Columbia Gas and the Montana-Dakota Utilities Company stated that 
conservation standards on gas appliances would result in a loss of 
natural gas sales, which, in turn, would lead to higher rates to all 
gas customers. (Columbia Gas, No. 45 at 5; Montana-Dakota Utilities 
Company, No. 54 at 3).
    The Department does not accept the inevitability of that 
contention; a loss of gas sales may or may not increase rates. The 
actual effect depends on the cost structure of the gas utility. If 
avoided costs are larger than rates, then reducing sales would actually 
decrease rates. Without study of individual gas utility cost 
structures, no a priori conclusion in this regard can be drawn.
    Lastly, four comments addressed the Department's planned analysis 
of environmental effects. Both the Southern Union Gas Company and 
Columbia Gas pointed out that the negative environmental effects from 
electric resistance water heaters are more severe than are the effects 
from natural gas water heaters. Columbia Gas stated that carbon dioxide 
emissions from electric resistance water heaters are 3.8 times higher 
than those from a minimum efficiency gas water heater. (Southern Union 
Gas Company, No. 22 at 2; Columbia Gas, No. 45 at 5). Also, the 
American Gas Association and Columbia Gas urged the Department to 
consider the environmental impact of the total energy delivery cycle, 
i.e., source energy, not just site consumption only. (American Gas 
Association, No. 23 at 3; Columbia Gas, No. 45 at 2).
    The statements regarding the relative environmental impacts of gas 
and resistance electric water heating are generally correct. 
Furthermore, the Department does account for source energy (not just 
site energy) savings by including the fuel used by electric utilities 
and the consequent emissions in the utility impact assessment and 
environmental analysis. These effects are reported in Chapter 9 of the 
Technical Support Document accompanying this Notice.

b. Product-Specific Comments

1. Room Air Conditioners
    Classes. In the September 1990 advance notice, DOE proposed 12 
classes of room air conditioners. The product classes consist of four 
categories; units with side louvers, units without side louvers, units 
with reversing valve with side louvers, and units with reversing valve 
without side louvers. There are five class divisions by capacity within 
each of the two categories without reversing valves.
    The California Energy Commission proposed a reduction in product 
classes from 12 to 4, eliminating the class divisions based on 
capacity. (California Energy Commission, No. 24 at 2). Whirlpool 
Corporation and Association of Home Appliance Manufacturers proposed 
two additional classes, a casement slider and a casement only room air 
conditioner. They stated that restricted geometry adversely impacts the 
potential new designs that can be applied to those types of room air 
conditioners. For example, rotary compressors could not be fitted into 
the casement units. (Whirlpool Corporation, No. 31 at 7; Association of 
Home Appliance Manufacturers No. 61A at 4). The American Council for an 
Energy Efficient Economy in its comments cited room air conditioners as 
an example where broad product classes have been properly selected. 
(American Council for an Energy Efficient Economy, No. 6, at 1).
    There are several constraints placed on the design of room air 
conditioners. Because most room air conditioners are installed in 
double-hung windows, the size of the most typical double-hung windows 
becomes a significant factor in cabinet design and production. Every 
room air conditioner unit could be designed to optimize performance and 
efficiency as long as a specific cabinet could be built to best suit 
the unit's particular capacity and efficiency. Manufacturers cannot 
afford the luxury of optimizing every model they produce, so they limit 
their production of cabinets to three or four sizes. Because of space 
and configuration limitations, the larger capacity units for a given 
cabinet size will tend to be less efficient. For this reason the 
Department is rejecting the California Energy Commission proposal to 
ignore capacity in establishing classes.
    The Department decided to adopt additional classes for casement 
slider and casement only room air conditioners. These units offer a 
unique utility to the consumer in that they offer a performance-related 
feature (fitting into casement windows) which other room air 
conditioners cannot provide. The Department believes that the size 
limitations imposed on casement units are more significant than those 
faced by typical double-hung window units. Since its performance-
related feature justified a lower standard, separate product classes 
were established for casement slider and casement only units. Because 
of the small amount of empirical data on casement type units, the 
Department was unable to analyze these classes. As a result, the 
Department is not proposing any standards for them.
    Design options. Both the Association of Home Appliance 
Manufacturers and Whirlpool Corporation provided detailed comments on 
each design option. (Association of Home Appliance Manufacturers, No. 
61A at 5-22 and Whirlpool Corporation, No. 31 at 6-13). A number of the 
comments concerned design changes to improve heat exchanger (evaporator 
and condenser) performance. These improvements can be put into two 
categories; designs for increasing the heat transfer surface area and 
designs for increasing the heat transfer coefficients. The heat 
transfer surface area can be increased by any of the following methods: 
increasing the depth of the coil by adding vertical tube rows, 
increasing the frontal area of the coil by increasing the height or 
width, increasing the fin density, or adding a subcooler to the 
condenser coil. The heat transfer coefficients can be increased by 
using an enhanced fin design or grooved (rifled) refrigerant tubing. In 
addition, spraying condensate on the condenser can improve its heat 
transfer coefficient.
    The Association of Home Appliance Manufacturers and Whirlpool 
Corporation commented that cabinet size could prevent or at least limit 
the number of tube rows that could be added to increase the depth of 
the coil. In addition, they state that the effect of each successive 
tube row on system performance diminishes rapidly. The Association of 
Home Appliance Manufacturers also commented that compressor reliability 
could be affected. The addition of tube rows increases the internal 
volume of the system and, therefore, the amount of refrigerant 
required. Compressor reliability could be reduced as the compressor 
would be required to pump excess refrigerant. Whirlpool Corporation 
added that a thicker coil will increase air flow restriction and may 
actually reduce efficiency. (Association of Home Appliance 
Manufacturers, No. 61A at 9-10; Whirlpool Corporation, No. 31 at 8).
    In the analysis of additional tube rows, the Department used 
engineering design data provided by room air conditioner manufacturers. 
The data were based on measurements taken from actual room air 
conditioner units and included information that specified the number of 
tube rows that could be added to the existing coils. The computer 
simulation model which was used in the analysis of room air 
conditioners considered the effect that additional tube rows have on 
the entire room air conditioner refrigerant system.
    The Association of Home Appliance Manufacturers and Whirlpool 
Corporation commented that increasing the frontal area of the coil 
would require an increase in chassis size. Coils in existing room air 
conditioners are already so large that any useful increase would 
require an increase in the size of the cabinet. The incremental cost 
for such a change would be significant. Whirlpool Corporation added 
that an increase in frontal area reduces the water removal capability 
of the evaporator coil. (Association of Home Appliance Manufacturers, 
No. 61A at 10; Whirlpool Corporation, No. 31 at 7).
    The Department agrees with the Association of Home Appliance 
Manufacturers's and Whirlpool Corporation's comments regarding the 
increase of the coil's frontal area. Any useful increase in performance 
would require that the cabinet size be increased as well. 
Manufacturers' cost data for this design were taken into consideration 
in the analysis. The computer simulation model takes into account the 
impact of increasing the coil frontal area on the evaporator's water 
removal capability.
    Both the Association of Home Appliance Manufacturers and Whirlpool 
Corporation stated that there is a limit to how high the fin density 
can be increased before air flow becomes too restricted and adversely 
affects the efficiency of the unit. In addition, an increased fin 
density might prevent the proper drainage of condensate from the 
evaporator. The Association of Home Appliance Manufacturers added that 
dirt build-up is a serious concern in coil design. With a higher fin 
density, greater dirt build-up is likely to result in coil degradation 
and lower unit efficiency. (Association of Home Appliance 
Manufacturers, No. 61A at 11; Whirlpool Corporation, No. 31 at 8).
    The Department solicited comments from room air conditioner 
manufacturers regarding the maximum allowable fin densities for a 
variety of evaporator and condenser coils. Their comments served as a 
guideline to how high fin densities could be increased for prospective 
coils. The computer simulation model is capable of calculating the 
effect that increased fin density has on the air-side pressure drop 
across the coil and, in turn, the power consumption of the fan motor.
    In its comment concerning subcoolers, Association of Home Appliance 
Manufacturers asserted that subcoolers are not used unless it is 
impossible to achieve the needed subcooling without them. The 
Association of Home Appliance Manufacturers also stated that when a 
subcooler is needed, the available room in the chassis dictates the 
allowable length of the subcooler. (Association of Home Appliance 
Manufacturers, No. 61A at 12, 13). Whirlpool Corporation stated that a 
subcooler type that transfers heat from the refrigerant in the liquid 
line to the superheat exiting the evaporator is not practical in room 
air conditioners due to limited space within the cabinet. (Whirlpool 
Corporation, No. 31 at 10).
    The Department understands the conventional practice used by 
manufacturers for incorporating subcoolers into room air conditioners. 
But the Department does not believe that this should prevent the design 
option from being considered. As long as the chassis of the particular 
unit is large enough to accommodate it, a subcooler will be considered 
as a way to improve a unit's performance. Engineering data supplied by 
manufacturers provided information on the maximum length of subcoolers 
which could be incorporated into a particular unit. The data were used 
to establish subcooler length for prospective room air conditioners.
    Enhanced fin surfaces, such as wavy or slit patterns, improve the 
heat transfer capability of a coil by increasing the air-side heat 
transfer coefficient. In its comments regarding enhanced fin designs, 
the Association of Home Appliance Manufacturers stated that most 
manufacturers now use a wavy or ``waffle'' fin (Association of Home 
Appliance Manufacturers, No. 61A at 12). Additional improvement can be 
achieved through the use of ``lanced'' or ``louvered'' fins. The 
Association of Home Appliance Manufacturers expressed a concern that 
data based on work performed by manufacturers should be more heavily 
relied upon than data based on published research papers available in 
the public domain. The publicly available data seems to be either based 
upon theoretical analysis or research-type testing of simulated coil 
configurations. The Association of Home Appliance Manufacturers stated 
that the correlation between the data and actual performance results in 
room air conditioners is difficult to determine. (Association of Home 
Appliance Manufacturers, No. 61A at 13, 14). Whirlpool Corporation 
stated that air flow is reduced and air-side pressure drop across the 
coil is increased due to incorporating enhanced fin surfaces into 
coils. But Whirlpool Corporation added that enhanced fin designs 
provide significant improvement without substantial additional cost. 
(Whirlpool Corporation, No. 31 at 9).
    The Department generally agrees with the comments made by 
Association of Home Appliance Manufacturers concerning enhanced fin 
design. Test data received from room air conditioner manufacturers and 
heat exchanger manufacturers are given more weight than theoretical 
analyses when deciding how much of an improvement should be given to 
the air-side heat transfer coefficients due to enhanced fin surfaces. 
The Department does not believe that the theoretical or research data 
available in the public domain should be dismissed entirely, and is 
using it as a check on the data received from manufacturers to 
determine if their information is reasonable. Improvements to the air-
side heat transfer coefficients are input to the computer simulation 
model. With this information on improvements, the model is able to 
determine what effect enhanced fin surfaces have on the entire room air 
conditioner system.
    Augmenting the smooth inside surface of refrigerant tubing with 
grooves increases the tube's refrigerant-side heat transfer 
coefficient. Grooved (rifled) tubing can therefore improve the heat 
transfer capability of a coil. The Association of Home Appliance 
Manufacturers' comments concerning grooved tubing are similar to the 
comments it gave regarding enhanced fin surfaces. The Association of 
Home Appliance Manufacturers stated that data based on work performed 
by manufacturers should be more heavily relied upon than data provided 
by refrigerant tubing manufacturers. The Association of Home Appliance 
Manufacturers asserted that the data made available by tubing 
manufacturers are generally obtained under optimized conditions rather 
than under conditions representing actual application in room air 
conditioners. (Association of Home Appliance Manufacturers, No. 61A at 
15). Whirlpool Corporation states that grooved tubing costs 
significantly more than smooth tubing but has a beneficial effect on 
system performance. (Whirlpool Corporation, No. 31 at 9).
    As with enhanced fin surface data, the Department is giving more 
weight to data received from room air conditioner manufacturers when 
deciding how much improvement should be given to the refrigerant-side 
heat coefficients due to grooved tubing. The Department is using data 
made available by refrigerant tubing manufacturers as well as data 
provided by research papers in the public domain to compliment the data 
received from room air conditioner manufacturers. (See Technical 
Support Document, Volume H). Improvements to the refrigerant-side heat 
transfer coefficients are input as multipliers to the computer 
simulation model. With the multipliers, the model is able to determine 
what effect grooved tubing has on the entire room air conditioner 
system.
    Whirlpool Corporation stated that it is standard practice to spray 
condensate produced by the evaporator onto the condenser coil. 
(Whirlpool Corporation, No. 31 at 9).
    Because most, if not all, manufacturers incorporate the spraying of 
condensate into their room air conditioners, the Department did not 
analyze condensate spray as a design option. Baseline models for each 
of the product classes are assumed to include condensate spray in their 
designs.
    Improving the air system efficiency can be accomplished either by 
increasing the fan or fan motor efficiency. In a room air conditioner, 
both the evaporator and condenser fans are driven by one fan motor. The 
Association of Home Appliance Manufacturers stated that increases in 
air system efficiency are limited because of the following: 
Configuration constraints due to the compact design of room air units; 
standardization of air system components because the industry's supply 
comes almost entirely from a single vendor; lower fan motor 
efficiencies that occur because the room air unit design is optimized 
at fan speeds other than the point of maximum motor efficiency; and air 
system designs which must limit noise levels. In addition, the 
Association of Home Appliance Manufacturers stated that fan motor 
efficiency is not expected to increase significantly by the year 1995. 
The Association of Home Appliance Manufacturers also stated that 
reductions in restrictions to air flow can be made only by increasing 
the space available for air flow. Major increases in cost would be 
associated with such a change as it would necessitate an increase in 
the chassis of the room air conditioner. (Association of Home Appliance 
Manufacturers, No. 61A at 16-19). Whirlpool Corporation repeated much 
of what the Association of Home Appliance Manufacturers stated and, in 
addition, stated that the use of separate fan motors would require 
significant redesign and increase the product cost. (Whirlpool 
Corporation, No. 31 at 11). Natural Resources Defense Council said that 
DOE should add improved air flow past coils as a design option. 
(Natural Resources Defense Council, No. 13 at 27). The American Council 
for an Energy Efficient Economy recommended that DOE treat fan and fan 
motor efficiency separately. (American Council for an Energy Efficient 
Economy, No. 6 at 3).
    In its analysis of increasing the air system efficiency, the 
Department analyzed only improvements that could be made to the fan 
motor. The data from fan manufacturers did not provide information on 
the effect of different fan types on air system efficiency in a room 
air conditioner application. Therefore, the Department did not analyze 
improvements due to changes in the fan efficiency. The Department 
agrees with the Association of Home Appliance Manufacturers's comment 
regarding restrictions to air flow. Increasing the space available for 
air flow can be accomplished only by enlarging the chassis size. In the 
analysis of increased coil face areas where the cabinet size had to be 
increased, increases in system efficiency were assumed to be a result 
not only of the enlarged coil, but also the improvement in air flow 
resulting from the larger cabinet. Therefore, improvements in the air 
flow past the coils are inherently considered in the analysis of 
increased coil face areas. The Department utilized data obtained from 
fan motor manufacturers to determine efficiency increases and the 
associated incremental costs for improving the efficiency of fan 
motors.
    Both the Association of Home Appliance Manufacturers and Whirlpool 
Corporation commented that most room air conditioner manufacturers use 
rotary compressors. Improvements beyond the currently available 
efficiency of 11.0 energy efficiency ratio are expected to be small. 
They also stated that higher efficiency scroll compressors might be 
suitable for larger capacity room air units. But use of scroll 
compressors would significantly increase the cost of room air 
conditioners. (Association of Home Appliance Manufacturers, No. 61A at 
19, 20; Whirlpool Corporation, No. 31 at 11). Natural Resources Defense 
Council said that DOE should disaggregate the design option of 
improving the compressor efficiency into motor efficiency, volumetric 
efficiency, reduced mechanical resistance in pumps, and alternate 
compressor designs. (Natural Resources Defense Council, No. 13 at 27).
    The Department took into account data from both room air 
conditioner and compressor manufacturers when determining the available 
efficiency increase in compressors. The data indicated that most room 
air conditioners use rotary compressors and that the maximum energy 
efficiency ratio for compressors of this type is 11.0. Other compressor 
types were also analyzed. New technologies for reciprocating 
compressors with capacities exceeding 17,000 Btu/h have pushed energy 
efficiency ratios past 11.0. These reciprocating compressors were 
considered for the two largest capacity classes of room air 
conditioners. Scroll compressors were also considered, but for the 
compressor capacities in the range used in room air conditioner units, 
energy efficiency ratios did not exceed 11.0. Compressor manufacturers 
indicated that there is a high probability that compressor energy 
efficiency ratios ranging from 11.5 to 12.0 would be available by the 
year 1995. Based on this information, compressor efficiencies of this 
magnitude were analyzed by the Department. In response to Natural 
Resources Defense Council's comment, compressor manufacturers increase 
compressor efficiency by improving the performance of these individual 
components. Data for the impact of component improvements are not 
available but, component improvements are reflected in higher 
compressor energy efficiency ratios. Therefore, the Department is 
analyzing the compressor as a whole rather than attempting to analyze 
individual components.
    Other comments. The American Council for an Energy Efficient 
Economy proposed that DOE revise the room air conditioner test 
procedure to determine the energy savings on a cycling rather than a 
steady state basis. If the test procedure cannot be revised during the 
rulemaking, the American Council for an Energy Efficient Economy 
recommended development of methods to estimate the benefits of design 
options which tend to improve efficiency under cycling conditions. 
(American Council for an Energy Efficient Economy, No. 6 at 2). On the 
other hand, the Association of Home Appliance Manufacturers and 
Whirlpool Corporation stated room air conditioners are not normally 
turned on for extended periods of time, and when they are turned on the 
(room and ambient) temperature is more likely to be high, reducing the 
amount of cycling. The current one-temperature test procedure 
adequately matches consumer usage patterns for room air conditioners. 
The Association of Home Appliance Manufacturers said that any change in 
the procedure will drive up the product cost and provide no benefit. It 
was the contention of the Association of Home Appliance Manufacturers 
and Whirlpool Corporation that design options such as variable speed 
compressors, electronic expansion valves, thermostatic cycling 
controls, and possibly use of alternative refrigerants that improve 
efficiency under cycling conditions will not result in any measurable 
efficiency improvements. The Association of Home Appliance 
Manufacturers stated that the addition of a cycling test must be 
justified by in-depth studies and field experiments to determine if the 
efficiency improvements such a revision would predict are cost-
effective. (Association of Home Appliance Manufacturers, No. 61A at 6-
8; Whirlpool Corporation, No. 31 at 12-14).
    In response, the Department believes that some design options may 
improve efficiency under cycling conditions. The Department also agrees 
that before such design options are translated into test procedure 
credits, field tests would need to be conducted to provide evidence to 
support such credits. Therefore, for purposes of this rulemaking, 
cycling designs for room air conditioners will not be given test 
procedure credit.
    Though no test procedure credit will be given to cycling designs, 
the Department believes that energy savings can be realized through the 
use of variable speed compressors. Energy savings for variable speed 
compressors have been estimated by extrapolating from results based on 
tests performed on central air conditioners. The extrapolated estimate 
is significantly lower than what test results indicate for central 
systems. A low estimate is used because room air conditioners probably 
cycle less than central systems. Cycling data for room air conditioners 
are not available.
    There are some design options listed in the Advance Notice of 
Proposed Rulemaking which are theoretically possible, but for which 
experimental data or prototypes are not available. The impact of 
electronic expansion valves and thermostatic cycling controls on the 
efficiency of room air conditioners has not been analyzed because the 
Department was not able to obtain any data for these designs.
    Both the Association of Home Appliance Manufacturers and Whirlpool 
Corporation made comments regarding replacement refrigerants for R-22. 
They commented that though research has identified refrigerant blends 
(non-azeotropic mixtures) that could improve the efficiency of room air 
conditioners, no prototypes have been developed that demonstrate this 
potential. In addition, changes would be required in room air 
conditioner systems, e.g., heat exchangers, in order for the unit to 
operate efficiently with the replacement refrigerant. (Association of 
Home Appliance Manufacturers, No. 61A at 8; Whirlpool Corporation, No. 
31 at 15).
    The Department agrees with the comments made by the Association of 
Home Appliance Manufacturers and Whirlpool Corporation regarding 
replacement refrigerants for R-22. Since no prototypes exist, the 
Department did not analyze replacement refrigerants as a design option 
for room air conditioners.
    The Association of Home Appliance Manufacturers provided extensive 
comments regarding the computer simulation model used by the Department 
to analyze room air conditioners. The Association of Home Appliance 
Manufacturers proposed the following changes to the computer simulation 
model: (1) Modification of the compressor subroutine to model rotary 
compressors and to simulate reciprocating compressors better; (2) 
correction of the condensate spray subroutine to predict its effect on 
system performance better; (3) addition of correction factors to 
account for indoor/outdoor air leakage, short-circuiting of indoor air, 
and heat leakage through the divider wall; (4) addition of 
multiplication factors to modify coil heat transfer coefficients as a 
result of using enhanced fin surfaces; (5) addition of correction 
factors to modify such values as the compressor power and refrigerant 
mass flow rate in order to assist in calibrating the model to test 
data; and (6) addition of a psychometric heat balance routine to check 
that the results from the simulation model are thermodynamically 
consistent. In addition to making changes to the simulation model, the 
Association of Home Appliance Manufacturers requested that DOE 
calibrate the model to match industry test data for the baseline models 
chosen to represent each of the room air conditioner product classes. 
The Association of Home Appliance Manufacturers also requested that the 
room air conditioner industry be given the opportunity to conduct 
experiments to judge the models validity after the needed changes to 
the model were completed. The Association of Home Appliance 
Manufacturers also stated that manufacturers' data should be given 
significant weight in predicting the increases to efficiency due to 
design modifications. (Association of Home Appliance Manufacturers, No. 
61A at 2,3). Whirlpool Corporation stated that it fully supports the 
Association of Home Appliance Manufacturers's recommended changes to 
the computer simulation model. (Whirlpool Corporation, No. 31 at 15).
    The Department has made the changes to the simulation model that 
were proposed by the Association of Home Appliance Manufacturers. 
Simulation of baseline models were calibrated against test data 
submitted by manufacturers. The Department encourages the room air 
industry to test the validity of the simulation model and submit 
results in response to the standard levels being proposed in this 
rulemaking.
    The Rocky Mountain Institute proposed that latent cooling be 
considered in room air conditioner energy savings, and that DOE 
investigate whether the spread between evaporator temperatures has been 
reduced to a minimum. (Rocky Mountain Institute, No. 15 at 4).
    The computer simulation model used in the analysis of room air 
conditioners evaluated the thermodynamic performance of the refrigerant 
system. In this evaluation, the removal of latent heat was calculated. 
Minimization of the difference in evaporator inlet and outlet 
temperatures is an inherent consideration in heat exchanger and system 
design. This temperature difference was determined by the simulation 
model.
    The Florida State Energy Office (FSEO) suggested that the 
Department consider classifying room air conditioners according to 
their load characteristics. (FSEO, No. 42 at 5, 6). The Association of 
Home Appliance Manufacturers stated that regional standards could 
increase the product's cost by denying manufacturers the economy of 
large production runs and augment distribution problems by isolating 
inventories by region. (Association of Home Appliance Manufacturers, 
No. 61A at 22-25).
    The Department assumes that the Florida State Energy Office comment 
concerns regional standards. The Department believes the program 
requires the setting of a national standard and is proposing therefore 
only a national standard for room air conditioners.
    The Natural Resources Defense Council and the Florida State Energy 
Office proposed that DOE establish procedures that take into account 
the integration of room air conditioners and water heaters (heat 
recovery units). (Natural Resources Defense Council No. 13 at 29; FSEO 
No. 42 at 2,3).
    Establishing standards and developing test procedures for 
appliances which serve two types of loads simultaneously is a very 
complex problem. The Department is in the process of developing 
standards and test procedures for combined central air conditioners and 
water heaters. However, because of the difficulty of running water 
lines to a remote room air conditioner location and the inherent heat 
losses from the hot water line, a room air conditioner/water heater 
configuration does not seem particularly appropriate. At this time, DOE 
will not establish a standard for room air conditioner/water heater 
systems.
    The Natural Resources Defense Council, the Florida State Energy 
Office and the American Council for an Energy Efficient Economy stated 
that DOE should consider the cost of peak power in evaluating the cost 
effectiveness of room air conditioner standards. (Natural Resources 
Defense Council No. 13 at 18; Florida State Energy Office No. 42 at 
5,6; American Council for an Energy Efficient Economy No. 6 at 7).
    The price of electricity used for room air conditioners is the 
projected 1996 average residential electricity price from DOE Annual 
Energy Outlook 1991. Analysis of electricity price by end-use from data 
in the DOE/EIA 1987 Residential Energy Consumption Survey indicates 
that the average electricity price for residential air conditioning was 
the same as the national average residential electricity price (in 
other words, the end-use price multiplier is 1.00). Cost effectiveness 
to the consumer, e.g., life cycle cost, payback and cost of conserved 
energy, is evaluated according to the actual charges to the consumer.
    The Fedders Corporation urged DOE to establish a minimum energy 
efficiency ratio for window air conditioners of 10.0, stating that this 
should be done to keep the industry competitive on a global basis. The 
Fedders Corporation also stated that existing technology clearly can 
support this minimum efficiency at small cost to manufacturers. 
(Fedders, No. 91 at 1).
    The Association of Home Appliance Manufacturers responded to the 
Fedders Corporation's comment stating that the Association of Home 
Appliance Manufacturers was unclear as to which classes the Fedders 
Corporation was referring, and urging DOE to maintain and evaluate 
separate classes of room air conditioners. Furthermore, the Association 
of Home Appliance Manufacturers stated that the Fedders Corporation 
cannot accurately judge the technological and economic impacts of such 
a minimum energy efficiency ratio on other manufacturers. (Association 
of Home Appliance Manufacturers, No. 92 at 1).
    The Department notes both comments and has analyzed each proposed 
class of room air conditioners separately, using all available cost and 
performance data. The results presented in today's notice as proposed 
minimum energy efficiency ratio's for room air conditioners range from 
9.3 to 11.1, depending on size and configuration.

2. Water Heaters

    Classes. There was considerable discussion about water heater 
product classes. Many comments came from gas utilities.
    The American Gas Association urged DOE to adopt a source-based 
energy analysis and to recognize the importance of efficiency of the 
total energy delivery cycle. (American Gas Association, No. 23 at 3.)
    The National Appliance Energy Conservation Act separates water 
heaters into three product classes by fuel type: Gas, electric and 
oil.\14\ Also, the National Appliance Energy Conservation Act directs 
the Secretary to develop different standards for product classes within 
an appliance type if they ``consume a different kind of energy from 
that consumed by other covered products within such type.''\15\ 
Therefore, the Department did not compare water heaters of different 
fuel types. However, the Department considered the effects of fuel-
switching caused by the standards, as forecasted by the Lawrence 
Berkeley Laboratory Residential Energy Model.
---------------------------------------------------------------------------

    \14\``Standards for Water Heaters; Pool Heaters; Direct Heating 
Equipment.'' 42 U.S.C. 6295(e).
    \15\``Special Rule for Certain Types or Classes of Products'', 
42 U.S.C. 6295 (n)(1)(A).
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    The American Gas Association and many of the gas utilities proposed 
additional classes for gas water heaters based on several factors. 
These included the utility of having hot water if the power fails and 
the high cost of bringing electricity to locations without electric 
outlets near the water heater. The American Gas Association argued that 
a precedent already exists with ranges/ovens for separate product 
classes with or without an electric cord. (American Gas Association, 
No. 23 at 4-6.)
    Several comments proposed that DOE establish four classes for gas 
water heaters: With and without draft hood, and with and without 
electric cord. (American Gas Association, No. 23 at 2; Southern Gas 
Association, No. 4 at 3; Lone Star Gas Company, No. 39 at 3; Southern 
Natural Gas Company, No. 46 at 2; LaClede Gas, No. 55 at 3; Equitable 
Resources, No. 72 at 1; Madison Gas & Electric, No. 77 at 1; Louisiana 
Gas, No. 81 at 1; United Texas Transmission, No. 26 at 2; Southern 
Union Gas Company, No. 22 at 1; Colorado Interstate Gas, No. 14 at 2; 
Wisconsin Gas Company, No. 33 at 1; South Carolina Electric and Gas 
Company, No. 34 at 2; Bay State Gas, No. 52 at 1; Arkansas Oklahoma 
Gas, No. 56 at 1; Providence Gas, No. 62 at 1; Southern Connecticut 
Gas, No. 63 at 1; Arkansas Western Gas, No. 64 at 4; ENTEX, No. 58 at 
5; Essex County Gas, No. 69 at 1; K N Energy, No. 70 at 3; and Delta 
Natural Gas, No. 73 at 2.)
    The Gas Appliance Manufacturers Association stated that DOE should 
recognize the particular utility and performance characteristics of 
conventional gas water heaters and preserve the availability of this 
product to the American consumer. (Gas Appliance Manufacturers 
Association, No. 40 at 3.)
    Two gas utility companies proposed three product classes for gas-
fired water heaters: with a draft hood with and without electric cord, 
and with electric cord (no designation on presence of draft hood). 
(Atlantic Gas Light Company, No. 29 at 2; and Energen, No. 12 at 4.)
    Some gas utilities proposed two product classes for gas water 
heaters, namely, with and without electric cord. (Oklahoma Natural Gas 
Company, No. 57 at 1; and Northern Indiana Public Service, No. 48 at 
2.)
    The Arkansas Western Gas Company listed several benefits provided 
by a standing pilot in water heaters. These benefits include keeping 
the flue warm, helping maintain water temperature in the tank, 
providing a low-cost, fail-proof ignition system, allowing operation 
during power outages, and low operating cost. (Arkansas Western Gas 
Company, No. 64 at 5.) Piedmont Natural Gas Company, Inc. urged the 
Department to evaluate fully the benefits of standing pilot ignition 
systems. Many citizens in North and South Carolina continued to have 
hot water and were able to cook after hurricane Hugo caused extensive 
power outages which lasted up to several weeks. (Piedmont Natural Gas 
Company, No. 71C at 2.)
    The Department considered only one product class for gas-fired 
storage water heaters. The Department believes that designs that 
eliminate draft hoods or add electric cords do not change the utility 
of water heaters; therefore, these designs do not warrant inclusion in 
a separate class. These design options were evaluated solely on 
economic considerations. Additional installation cost to bring 
electricity to water heaters not close to outlets was included in the 
analysis of those design options. When condensation from mid-efficiency 
water heaters would damage masonry chimneys, the cost of relining or 
power venting was added to the installation costs.
    The Department does not consider the utility of having hot water, 
or other amenities, during power outages adequate reason to develop 
separate product classes. Between 90 percent and 93 percent of 
residential electric customers experience no electricity outages longer 
than four hours per year.\16\ Currently, central gas furnaces are not 
divided into product classes based on the use of electricity as 
proposed above for gas water heaters. Additionally, in this proposal, 
ranges/ovens are not divided into two product classes based on the use 
of electricity.
---------------------------------------------------------------------------

    \16\A.P. Sanghvi. 1990. Cost-Benefit Analysis of Power System 
Reliability: Determination of Interruption Costs. Prepared by RCG/
Hagler/Bailly Inc. for Electric Power Research Institute EL-6791, 
vol 2, p 3-3.
---------------------------------------------------------------------------

    The Public Service Company of North Carolina, Inc. recommended that 
additional product classes be defined for gas-fired storage water 
heaters installed outside. (Public Service Company of North Carolina, 
Inc., No. 74 at 3).
    The Department is not aware of any unique water heater design 
features that lead to any utility and lower energy efficiency that 
justifies a separate class. Therefore, the Department is not 
establishing a separate product class for gas-fired water heaters 
installed outside.
    The Pacific Power and Edison Electric Institute supported three 
separate classes for electric water heaters (resistance, instantaneous, 
and heat pump). The Pacific Power stated that heat pump water heater 
efficiency depends upon climate and use patterns. (Pacific Power, No. 
53 at 1, and Edison Electric Institute, No. 20 at 2). Peoples Natural 
Gas Company stated that heat pump water heaters should be promoted over 
electric resistance water heaters. (Peoples Natural Gas Company, No. 28 
at 3).
    Several comments proposed that heat pump water heaters be treated 
as a design option for electric storage water heaters, and not as a 
separate product class. (DEC International No. 3 at 1; Mr. Wayne Goode, 
No. 8 at 1; Mr. Joe Wilson, No. 10 at 1; American Council for an Energy 
Efficient Economy, No. 6 at 1; Natural Resources Defense Council, No. 
13 at 21; Rocky Mountain Institute, No. 15 at 2; Crispaire, No. 19 at 
1; Citizens Environmental Coalition Educational Fund, No. 24 at 3; 
Champaign County Board, No. 36 at 1; Northwest Power Planning Council, 
No. 32 at 1; Mr. George Smith, No. 32 at 2; Sierra Club, No. 43 at 2; 
and Mr. Warren Widener, No. 78 at 2). Northwest Power Planning Council 
proposed a separate product class for add-on heat pumps for water 
heaters. (Northwest Power Planning Council, No. 32 at 2).
    The Natural Resources Defense Council argued that heat pump water 
heaters should not be a separate class. In its comments, the Natural 
Resources Defense Council acknowledged some arguments in favor of 
keeping them a separate class, such as the inability to operate at low 
temperatures, which the Natural Resources Defense Council claimed can 
be overcome with electric resistance backup; first hour rating, which 
the Natural Resources Defense Council stated can be overcome with a 
larger tank; and noise, which the Natural Resources Defense Council 
suggested can be overcome with more insulation. The Natural Resources 
Defense Council argued that these are economic considerations, not 
product utility considerations. (Natural Resources Defense Council, No. 
13 at 22). On the other hand, Edison Electric Institute supported a 
separate product class for heat pump water heaters. Because of 
replacement market considerations, the heat pump compressor may have to 
be located outdoors, the air temperature must be greater than 45 deg.F, 
sufficient air circulation is needed (500 cfm) or surrounding air space 
must be of sufficient volume (1000 ft\3\), and there must be provision 
for condensate drainage. (Edison Electric Institute, No. 20 at 2).
    The Gas Appliance Manufacturers Association stated that DOE should 
not analyze heat pump water heaters since their shipments are extremely 
low, totaling less than 0.05 percent of all electric water heater 
shipments. (Gas Appliance Manufacturers Association, No. 40 at 4).
    The Department considered only one product class for electric 
storage water heaters. Heat pump water heaters were regarded as design 
options for electric storage water heaters. They provide the same 
utility as electric resistance storage water heaters. The Department 
agreed with the Natural Resources Defense Council that all of the 
issues regarding heat pump water heaters discussed above are economic 
in nature, and are treated as such in the analyses.
    The Department decided a separate product class was not appropriate 
for add-on heat pumps. Since this type of heat pump is always used with 
a storage tank, there is no difference in the utility provided to the 
consumer.
    No detailed information describing the location of electric water 
heaters in existing houses was provided. Lacking better data, DOE 
assumed sufficient volume of air circulation would be available to 
allow proper operation of heat pump water heaters. Most of the heat 
pump water heaters considered in this analysis are currently available. 
They are all equipped with freeze protection and have backup resistance 
elements. This permits operation under adverse conditions. Providing 
condensate drains was included in the installation costs for all heat 
pump water heaters.
    The Department rejected the Gas Appliance Manufacturers 
Association's comment that heat pump water heaters not be considered in 
the analysis because of their low sales volume. The Department would 
agree with the Gas Appliance Manufacturers Association if heat pump 
water heaters warranted a separate class; however, since they are 
treated as a design option, DOE concluded that they warrant 
consideration. The effect on water heater manufacturers of standard 
levels requiring heat pump water heaters was considered in the 
manufacturing impact analysis.
    The low heating rate of electric instantaneous water heaters 
presents a disadvantage with respect to their capability to provide a 
large quantity of hot water as rapidly as an electric resistance 
storage water heater. This difference justified two product classes 
(instantaneous and all other) for electric water heaters. There is 
little that can be done to improve the efficiency of electric 
instantaneous water heaters. Therefore, standards were not developed 
for electric instantaneous water heaters.
    Gas-fired instantaneous water heaters can provide unlimited amounts 
of hot water, but at limited rates. The Department judged this to be a 
significant difference in utility to the consumer. Gas instantaneous 
water heaters were, therefore, specified as a separate product class, 
and analyzed as such for standards.
    United Technologies Carrier proposed a separate product class for a 
combined space and water heater. Electricity-using design options are 
viable for combination appliances, but would cause substantial 
increases in prices for gas water heater installations, and would 
inconvenience many customers. (United Technologies Carrier, No. 84 at 
1). The Florida Governor's Office and the Northwest Power Planning 
Council proposed a product class for desuperheater water heaters. These 
are popular in Florida and use waste heat from air conditioners. 
Therefore, they operate only during the cooling season. (Florida 
Governor's Office, No. 42 at 6, and Northwest Power Planning 
Commission, No. 32 at 2).
    Before the Department can consider combination space and water 
heating appliances and desuperheating water heaters for regulation, 
test procedures would have to be developed and adopted by DOE for such 
appliances. Furthermore, appliances that provide combined services will 
be examined during a forthcoming rulemaking on amended standards for 
central air conditioners and central air conditioning heat pumps.
    Design options. There were many comments on the design options for 
water heaters. A discussion of these comments follows below.
    The Southern Gas Association and other gas companies provided price 
estimates of more efficient water heater designs. For water heaters 
with energy factors of 0.63, 0.74, and 0.54, the American Gas 
Association estimated uninstalled prices of $667, $729, and $195, 
respectively. (Southern Gas Association No. 4 at 4; Energen Corp. and 
Alabama Gas Corp., No. 12 at 6; South Carolina Electric and Gas Co., 
No. 34 at 3; Montana-Dakota Utilities Co., No. 54 at 3; Oklahoma 
Natural Gas Company, No. 57 at 4).
    The Columbia Gas provided a comparison of design options, energy 
factors and retail prices for four designs of efficiencies of gas water 
heaters. These were atmospheric draft/underfired (energy factor .54, 
$150-$350), atmospheric draft/subchamber (energy factor .62, $250-
$500), forced draft/subchamber (energy factor .72, $600-$900), forced 
draft/immersed chamber (energy factor .82, $1300-$1800). (Columbia Gas, 
No. 45 at 3).
    The Department used a retail price of $155.48 for the baseline 
model with an energy factor of .54. This is based on a factory cost of 
$95.63 supplied by the Gas Appliance Manufacturers Association. The 63 
percent markup from factory cost to retail price was provided by the 
Lawrence Berkeley Laboratory-Manufacturer Impact Model. Installation 
expense used in the analysis for the baseline model was $126.12.
    The Department included a standard venting, submerged combustion 
chamber water heater with heat traps, reduced heat leaks and R-16 
insulation in the analysis, with an estimated energy factor of .57. At 
large-scale production, the submerged combustion chamber will not 
increase the factory cost.\17\ The heat traps, reduced heat leaks, and 
R-16 insulation added $18.19 to the factory cost, for a total factory 
cost of $113.82. The Lawrence Berkeley Laboratory-Manufacturer Impact 
Model estimated a markup of about 57 percent for a total retail price 
of $179.22.
---------------------------------------------------------------------------

    \17\This information was from Robert Cook who cited a study on 
projected costs done by A.O. Smith.
---------------------------------------------------------------------------

    A model with an energy factor of .74 (calculated to have an energy 
factor of .71 using the proposed test procedure) was also included in 
the analysis. This unit has 2 inches of foam insulation surrounding a 
plastic tank, heat traps, indirect heating of the water, and electronic 
ignition. The Department estimated the factory cost of this unit at 
large-volume production to be $344.41. This estimate was based on an 
estimated 16 percent reduction in factory costs due to large-scale 
production. The retail price predicted by Manufacturer Impact Model was 
$612.96, with a 78 percent markup.
    A water heater with forced draft and submerged combustion chamber 
was not analyzed. However, the Department did consider forced draft 
with increased baffling. An estimated incremental manufacturing cost of 
$312.50 was supplied by the Gas Appliance Manufacturers Association. 
Heat traps, reduced heat leaks, and R-16 insulation were also included 
on this unit for an energy factor of .67 (calculated to have an energy 
factor of .66 using the proposed test procedure). A total factory cost 
of $426.32 was used. A markup of 40 percent from the Lawrence Berkeley 
Laboratory-Manufacturer Impact Model was applied to arrive at a retail 
price of $596.83.
    The Department was not aware of any existing designs or prototypes 
for water heaters with forced draft and immersed chambers. No analysis 
was done for this design option.
    The Wisconsin Blue Flame Council cited an incremental unit cost of 
$150 to $200 to add automatic ignition devices and flue dampers to 
residential gas-fired water heaters. (Wisconsin Blue Flame Council, No. 
33 at 33). Equitable Resources stated the additional cost for 
electrical safety controls to be approximately $20 to $50. (Equitable 
Resources, No. 72 at 2).
    The Department used an incremental material cost of $49 for a spark 
ignition system, flue damper, 24-volt plug-transformer, and control 
relay.\18\ Other factory costs were from the Gas Appliance 
Manufacturers Association data.
---------------------------------------------------------------------------

    \18\Paul, D.D., Stickford, G.H., & Locklin, D.W. Assessment of 
Technology for Improving the Efficiency of Residential Gas Water 
Heaters, Second Interim Report, June 3, 1991, Battelle, Columbus OH, 
prepared for Gas Research Institute.
---------------------------------------------------------------------------

Design Options for Storage Water Heaters
    The Rocky Mountain Institute stated that DOE should study insulated 
pressure relief valves, plastic drain pipes, and flexible anode rods. 
(Rocky Mountain Institute, No. 15 at 4). The Natural Resources Defense 
Council proposed that DOE evaluate thermal short circuits through 
insulation. Work performed by the California Energy Commission and the 
National Institute of Standards and Technology showed that the 
effective thermal resistance is often 50 percent or less than the 
thermal resistance calculated from the level of insulation. (Natural 
Resources Defense Council, No. 13 at 27).
    Reduced heat leaks were included as one of the design options in 
the analysis of water heaters. The actual features of this design 
option were not specified. Measures that could be included in this 
design option were to eliminate thermal bridges from jacket to feed 
throughs, to eliminate voids in insulation, to insulate the pressure 
relief valve, to install plastic drain pipes, and to reduce the number 
of feed throughs by combining functions. These measures were not 
modeled separately.
    The American Council for an Energy Efficient Economy proposed that 
vacuum panels be considered as a design option. (American Council for 
an Energy Efficient Economy, No. 6 at 3).
    Vacuum insulation was considered as one of the design options for 
both gas-fired and electric storage water heaters.
    The Rocky Mountain Institute stated that DOE should study more 
accurate thermostats and pipe insulation. (Rocky Mountain Institute, 
No. 15 at 4).
    The Department is not aware of any method to quantify energy 
savings from more accurate thermostats. Pipe insulation, which is not 
part of the water heater, was not considered as a design option because 
of concerns that it might not always be installed in the field.
    The Pacific Power stated its research shows that heat traps add 
only 1 percent to an electric water heater's efficiency, not 5 percent 
as assigned in the previous DOE testing procedure for water heaters. 
(Pacific Power, No. 53 at 2).
    The Department used data from a letter report prepared for DOE.\19\ 
This report determined actual heat losses out of pipe fittings with and 
without heat traps. The letter reported that heat traps provide a 
savings of nine watts on the hot water outlet and seven watts on the 
inlet. Applied to the baseline model, this results in a 2.5 percent 
increase in energy factor.
---------------------------------------------------------------------------

    \19\James E. Harris, Test Results on the Effectiveness of Heat 
Traps on Water Heaters, May 1982, Building Equipment Division, 
Center for Building Technology, National Bureau of Standards.
---------------------------------------------------------------------------

Design Options for Gas-Fired Storage Water Heaters.
    The Gas Appliance Manufacturers Association recommended that the 
multiple flues and submerged combustion chamber design options be 
combined into a single category to be called increased heat transfer 
surface. (Gas Appliance Manufacturers Association, No. 40 at 4).
    The Department found enough difference in efficiency and cost 
between these designs to merit classification as individual design 
options. Water heaters currently on the market with submerged 
combustion chambers have recovery efficiencies of 85 percent, whereas 
currently available units with multiple flues have recovery 
efficiencies of 80 percent.
    The Gas Appliance Manufacturers Association recommended that pulse 
combustion and condensation be simplified to condensation of flue 
gases. The essential efficiency improvement is to extract enough heat 
out of the flue gases, such that condensation occurs. (Gas Appliance 
Manufacturers Association, No 40. at 5).
    The Department notes that manufacturing costs and actual 
efficiencies for design options that condense flue gases depend on the 
method of condensation. Therefore, pulse combustion was retained as a 
separate design option.
    Northern Indiana Public Service recommended that pulse combustion 
and condensation of flue gases be eliminated as design options. While 
these designs are clearly feasible from a technical standpoint, cost 
considerations have proven to be insurmountable thus far. (Northern 
Indiana Public Service, No. 48 at 3).
    Since pulse combustion and condensation of flue gas technologies 
are feasible, the Department cannot eliminate these design options, but 
has considered their cost impacts using the best available estimates of 
manufacturing cost.
    The American Council for an Energy Efficient Economy proposed that 
flue dampers and intermittent ignition devices be treated as separate 
designs. (American Council for an Energy Efficient Economy, No. 6 at 
3).
    Because of concerns about contaminating indoor air with combustion 
products from the pilot light, the Department did not consider flue 
dampers as a separate design option.
    The Natural Resources Defense Council proposed that DOE evaluate 
power combustion with intermittent ignition devices. (Natural Resources 
Defense Council, No. 13 at 27).
    From the limited description of this design option, the Department 
assumed that the Natural Resources Defense Council was referring to a 
fan-assisted combustion system using electronic ignition with the fan 
before the combustion chamber. Part of the increase in efficiency from 
this design is caused by the fan restricting off-cycle air flow through 
the flue. This reduces off-cycle flue losses. The Department analyzed 
power vent with intermittent ignition devices, which is a fan-assisted 
combustion system with the fan after the combustion chamber. The 
reduction of flue losses would be similar to the reduction for the 
design option recommended by the Natural Resources Defense Council.
    Northern Indiana Public Service also stated that for vent fans, the 
main energy-conserving value is the reduction of flue losses, and a 
thermal vent damper could be used to accomplish that reduction more 
simply. (Northern Indiana Public Service, No. 48 at 4).
    The Department did not analyze vent dampers, which are above the 
draft hood, but did analyze flue dampers, which are below the draft 
hood, in conjunction with intermittent ignition devices as discussed 
above.
    Oklahoma Natural Gas proposed that DOE analyze improved burner 
design, modulating controls, improved flue baffling and improved fill 
tube designs to reduce sediment buildup and temperature stacking of 
heated water. (Oklahoma Natural Gas, No. 57 at 2).
    The Department was not able to obtain cost and efficiency data for 
improved burner design or fill tube designs. No analysis was done for 
modulating controls, because the Department is not aware of how this 
design would improve efficiency. Improved flue baffling was included as 
a design option.
    Mr. Rajendra Narang provided patented items for improving the 
efficiency of gas and oil water heaters. These included preheat of 
combustion air, self-regulating fuel flow to the burner, lower heat 
input, combustion dampers, and better heat exchangers. (Narang, No. 
82).
    No data on potential energy efficiency improvements or incremental 
manufacturing costs were available for these design options. In 
addition, DOE was not able to develop any estimates on the cost or 
efficiency of these designs. Therefore, they were not included in 
today's proposed rule. The Department requests cost and efficiency data 
on these designs in order to evaluate them for inclusion in the final 
rule.
Pilot Light Design Options
    The Gas Appliance Manufacturers Association stated that ``reduced 
pilot light input rate'' should not be considered as a design option 
because pilot inputs have been reduced to the optimal point. (Gas 
Appliance Manufacturers Association, No. 40 at 4).
    The Department agrees with the Gas Appliance Manufacturers 
Association on this issue. Therefore, further reductions in pilot light 
input rate were not considered.
    Northern Indiana Public Service stated that the elimination of a 
pilot light has a very small savings. (Northern Indiana Public Service, 
No. 48 at 4). Washington Gas Light Company noted that not all of the 
heat from a pilot light is wasted. (Washington Gas Light Company, No. 
37 at 9).
    The Department agrees that only a portion of the heat from a pilot 
light is wasted. In the analysis, DOE assumed 76 percent of the pilot 
light's energy went to maintaining water temperature. This is based on 
the theory that a pilot light would have the same efficiency as the 
recovery efficiency of the water heater. Therefore, only the 24 percent 
of the pilot light input available to be saved by an intermittent 
ignition device was included in the analysis.
Design Options for Electric Storage Water Heaters
    The National Rural Electric Cooperative Association stated that 
off-peak water heaters save energy. (National Rural Electric 
Cooperative Association, No. 17 at 1). Vaughn said that off-peak 
electric water heaters can save energy use by controlling time period 
elements are allowed to heat water. (Vaughn, No. 75 at 2).
    The Department did include off-peak water heaters as a design 
option in the Engineering Analysis for electric water heaters. However, 
as stated above, the Department believes that the economics of this 
design option, in the absence of the nationwide availability of time-
of-day rates, precludes using this design option in setting national 
standards.
    Crispaire provided unit energy consumption and annual performance 
factors for heat pump water heaters and electric resistance water 
heaters. Crispaire also stated that its studies showed consumer 
acceptance of heat pump water heaters. (Crispaire, No. 19 at 2).
    The Department included two existing models of heat pump water 
heaters in the analysis of electric water heaters. One was an E-Tech 
brand model manufactured by Crispaire. Energy consumption for this 
model was calculated from the energy factor derived from the DOE water 
heater test procedure in effect prior to October 17, 1990,\20\ derated 
by 25 percent to account for estimated reductions due to the current 
test procedure relative to the previous test procedure. This derating 
value was based on estimated reductions of 15-20 percent from ETL 
Testing Laboratories,\21\ 27 percent from the Gas Appliance 
Manufacturers Association,\22\ and 30 percent from Electric Power 
Research Institute\23\ simulation models. The Gas Appliance 
Manufacturers Association estimate was based on the difference between 
data supplied in support of the rulemaking and the least efficient heat 
pump water heater listed in its directory. This is a minimum estimate 
of the difference. The Department requests test data on heat pump water 
heaters, in accordance with the existing test procedures, for 
consideration in the final rule.
---------------------------------------------------------------------------

    \20\Gas Applicance Manufacturers Association, Consumer's 
Directory of Certified Efficiency Ratings for Residential Heating 
and Water Heating Equipment, October 1990, pg 184.
    \21\John Sabelli, ETL Labs. Phone conversation on 1/29/91.
    \22\Consumers' Directory of Certified Efficiency Ratings for 
Residential Heating and Water Heating Equipment, GAMA, October 1990.
    \23\Carl Hiller, Electric Power Research Institute. Phone 
conversation, 7/23/91.
---------------------------------------------------------------------------

    The Natural Resources Defense Council advised that increased jacket 
insulation and heat traps be evaluated for heat pump water heaters. 
(Natural Resources Defense Council, No. 13 at 27).
    Heat pump water heaters were analyzed as a design option for 
electric storage water heaters. Increased jacket insulation and heat 
traps were also included as design options for this product class.
    The Ohio Sierra Club commented that in many parts of the U.S., a 
solar water heating system is considerably more cost-effective than an 
electric water heater. (Ohio Sierra Club, No. 11 at 2).
    The Department included solar pre-heating as a design option for 
electric storage water heaters. Baltimore, Maryland was used as the 
location for evaluating the solar water heating systems. Baltimore was 
chosen as the one site that most closely approximated the population-
weighted average climate of the United States.
Design Options for Instantaneous Gas-Fired Water Heaters
    The Gas Appliance Manufacturers Association commented that reducing 
the amount of water within instantaneous water heaters would reduce the 
heater's ability to provide sufficient heated water. The Gas Appliance 
Manufacturers Association further noted that instantaneous water 
heaters do not utilize flues to transfer heat to water. Design options 
which concern flue improvements are not applicable to instantaneous 
water heaters. (Gas Appliance Manufacturers Association, No. 40 at 5).
    The Department agrees with the Gas Appliance Manufacturers 
Association on these issues. Reducing the amount of water in the heater 
and flue improvements were not considered in the analysis of 
instantaneous water heaters.
    The Natural Resources Defense Council recommended that DOE consider 
an intermittent ignition device for instantaneous water heaters as a 
design option. (Natural Resources Defense Council, No. 13 at 27).
    This design option was included in the analysis of instantaneous 
water heaters.
Reducing Water Heater Setpoint Temperature
    Another comment on design options dealt with a design to limit the 
temperature of the hot water produced by a water heater. National 
Wildlife Federation proposed that DOE consider the promulgation of a 
design standard covering the factory setting of water heater 
temperature controls. It stated that 140 deg.F water can cause burns, 
and reducing this temperature could lower accidents. In addition, the 
energy savings would be substantial. (National Wildlife Federation, No. 
21 at 3).
    The Department did not consider the hot water setting as a design 
option for water heaters. While it is true that reducing the hot water 
temperature will save energy at the water heater, hot wash cycles in 
clothes washers and dishwashers with 140 deg.F water are required for 
certain conditions. All clothes washers and dishwashers would have to 
contain electric resistance booster heaters to maintain this utility. 
The use of these electric resistance booster heaters would mean that 
some water heating currently being performed by gas water heaters would 
be performed by electrical resistance heating with a corresponding loss 
in overall efficiency.
    Other Comments. Fuel switching. One of the most discussed consumer 
issues involved the impact of increases in initial purchase price for 
gas water heaters, since standards could alter consumer fuel choice, 
resulting in increased electricity consumption at the expense of gas 
consumption, and increased environmental degradation. (Middle Tennessee 
Natural Gas Utility District, No. 1 at 1; Wisconsin Southern Gas 
Company, No. 9 at 1-2; Colorado Interstate Gas Company, No. 14 at 2; 
Peoples Natural Gas Company, No. 28 at 1; Wisconsin Blue Flame Council, 
No. 33 at 1-2; WGL, No. 37 at 5; Columbia Gas Distribution Company, No. 
45 at 3; Northern Indiana Public Service Company, No. 48 at 4; ENTEX, 
No. 58 at 2; Peoples Gas Light and Coke Company (Peoples), No. 65 at 1; 
Mobile Gas Service Corporation, No. 66 at 2; Northern Minnesota 
Utilities, No. 68 at 1; Delta Natural Gas Company, Inc., No. 73 at 1; 
Public Service Company of North Carolina, Inc., No. 74 at 4; and 
Southern California Gas Company, No. 79 at 1).
    Concern was expressed that if standards imposed on gas water 
heaters include automatic ignition, requiring electric service, there 
will be a sizeable increase in the prices of gas appliances. The 
comments argued that builders are concerned with initial purchase 
prices, not life-cycle costs; thus, a switch to electricity consumption 
will occur.
    The Department is sensitive to fuel-switching issues. The 
Department incorporated available data about fuel shares in new housing 
and replacement markets, based on historical purchase patterns, in the 
Lawrence Berkeley Laboratory Residential Energy Model. Additional data 
to quantify the sensitivity in the market to first cost and to 
operating cost were obtained. Also, sensitivity analyses were performed 
in the forecast of shipments of water heaters.
    The Department also notes that standards resulting in price 
increases on gas water heaters would cause switching to electric water 
heaters only if similar or greater price increases did not occur for 
efficiency improvements to electric water heaters, which is certainly 
not the case.
Supplying Electricity to Gas-Fired Storage Water Heaters
    Several comments addressed inclusion of installation and 
maintenance expenses in the engineering analyses. The Southern Gas 
Association, American Gas Association, and Gas Appliance Manufacturers 
Association, among others, stated that installation (electric supply 
and venting alterations) and maintenance for gas water heater designs 
that would require electricity, such as intermittent ignition device, 
induced draft combustion, power venting, and condensing, must be 
included in the analyses. (Southern Gas Association, No. 4 at 10; 
American Gas Association, No. 23 at 3; and Gas Appliance Manufacturers 
Association, No. 40 at 8).
    The American Gas Association, Southern Gas Association, and several 
other gas utilities gave estimates of costs for providing electric 
service to a water heater. For an existing appliance location, costs 
ranged from $75 to $200 and for new construction from $15 to $50. 
(American Gas Association, No. 23 at 5; Southern Gas Association, No. 4 
at 3; Lone Star, No. 39 at 6; Energen, No. 12 at 5; Equitable 
Resources, No. 72 at 2; South Carolina Gas and Electric Company, No. 34 
at 2, 3; Arkansas Western Gas Company, No. 64 at 5; ENTEX, No. 58 at 5; 
Public Service Company of North Carolina, No. 74 at 4; Oklahoma Natural 
Gas Company, No. 57 at 3.)
    The Gas Appliance Manufacturers Association stated that 
installation expenses for electric service could double the installed 
price of the water heater. (Gas Appliance Manufacturers Association, 
No. 40 at 3). On the other hand, Flair said that in northern climates, 
the water heater most likely stands next to the furnace, which has an 
electrical supply readily and cheaply available to the water heater. 
Flair estimated that the average price of adding electricity is much 
less than the cost of the water heater. (Flair, No. 85 at 1).
    The Department used a cost of $11.20 for the installer to add a 
small plug-in transformer and install low-voltage wiring to the water 
heater.\24\ The Department assumed this would not require an 
electrician, and would allow the water heater to be installed a large 
distance from an existing outlet. This would provide sufficient power 
to run safety controls, spark ignition, flue damper, and a small 
venting fan. For design options, such as condensing flue gases, 
submerged combustion, and direct firing, which would require higher 
voltage, a charge of $100 was used as the installation price of 
providing electricity. This figure was presented to the Department by 
Southern Gas Association.
---------------------------------------------------------------------------

    \24\Paul, D.D., Stickford, G.H., & Locklin, D.W. Assessment of 
Technology for Improving the Efficiency of Residential Gas Water 
Heaters, Second Interim Report, June 3, 1991, Battelle, Columbus OH, 
prepared for Gas Research Institute.
---------------------------------------------------------------------------

Modification of Existing Venting Systems
    The Gas Appliance Manufacturers Association mentioned that for 
water heating systems to be compatible with existing venting systems, 
recovery efficiencies must be less than 82 percent. Gas Appliance 
Manufacturers Association further stated that elimination of the draft 
hood and installation of a new venting system for both a furnace and 
water heater would modify the installed price of the water heater by 
three to five times. (Gas Appliance Manufacturers Association, No.40 at 
4). The Gas Research Institute said that additional expenses of 
altering venting systems are necessary for high- efficiency water 
heaters. Estimates of these expenses\25\ were provided to the 
Department on a regional basis. (Gas Research Institute, No. 59 at 2-
3).
---------------------------------------------------------------------------

    \25\Ibid.
---------------------------------------------------------------------------

    The Washington Gas Light, Inc. indicated that ``installing a water 
heater with a vent damper or power combustion into an existing masonry 
chimney . . . may result in the need to reline the chimney.'' The 
charge for this would be between $500 and $2000. (Washington Gas Light, 
Inc., No. 37 at 8). ENTEX estimated installing a new vent system in its 
service area would be approximately $260. (ENTEX, No. 58 at 5). Energen 
Corporation estimated the incremental cost of adding a new vent system 
at $125 to $175. (Energen, No. 12 at 6).
    The charge for relining venting systems that were not type-B was 
added to the installation expense of all design options with recovery 
efficiencies above 80 percent that were not power vented. The 
Department used values of $408 for relining masonry chimneys, $85 for 
replacing vent connectors, and $75 for adding a sidewall venting 
system.\26\
---------------------------------------------------------------------------

    \26\Ibid.
---------------------------------------------------------------------------

Maintenance
    Mississippi Valley and Energen stated that when an intermittent 
ignition device and flue damper or forced draft combustion are added to 
a gas water heater, it is likely that at least one of the following 
components (ignitor, fan motor, printed circuit board, fan relay 
system, or vent damper assembly) will fail and need service or 
replacement in the 10- to 12-year life of the water heater. 
(Mississippi Valley, No. 5 at 6; Energen, No. 12 at 8).
    Among other comments on the engineering analysis of water heaters, 
Energen stated that reliability and functionality issues are most 
important in a total system-specific, real world situation. Issues such 
as venting materials, vent categories, common venting, vent-system 
condensation, corrosion, masonry chimney suitability, backdrafting, 
spillage, negative room pressure, combustion air management, 
construction clearances, vent termination requirements, heat or flame 
roll out, flammable vapors ignition, and others must be a significant 
part of the efficiency equation. (Energen, No. 12 at 9).
    The limited data available on component lifetimes suggested failure 
would occur near the end of the service life of water heaters. 
Therefore, the Department did not include maintenance expenses in the 
analysis. The Department requests data on water heater lifetimes, 
component lifetimes and service costs for consideration in the final 
rule.
Baseline Model
    The Southern Gas Association and other gas suppliers recommended 
baseline units and costs. (Southern Gas Association, No. 4 at 8). 
Energen said that the baseline unit should logically be a natural 
draft, non-powered unit upgraded to the highest field-proven technology 
level, including heat traps, advanced insulation techniques, sealing of 
the pilot light and/or main burner combustion cavity, piezo pilot 
ignitors, flue dampers and or advanced flue baffling. (Energen No. 12 
at 8). Lone Star proposed that shipment data from the Gas Appliance 
Manufacturers Association be used for baselines. (Lone Star, No. 39 at 
3).
    The baseline model used in this analysis was established from data 
provided by the Gas Appliance Manufacturers Association who was 
supplied with the data by manufacturers. The baseline represents a 
typical water heater that marginally meets the 1990 National Appliance 
Energy Conservation Act standards.
    The baseline gas-fired storage water heater is a center flue, 
glass- lined steel tank with a standing pilot. It has a 40-gallon tank 
and 1-inch-thick foam insulation. Both the inlet and outlet are at the 
top of the tank. It has six feed throughs and no heat traps. It is 
bottom-fired with a three-inch central flue. The burner input is 34,000 
Btu per hour. The pilot light input rate is 400 Btu per hour.
    The baseline model for the electric water heater analysis is a 
glass-lined steel tank, with two 4,500-watt resistance elements. It has 
a 52-gallon tank and 2-inch-thick foam insulation. Both the inlet and 
the outlet are on top of the tank. It has eight feed throughs and no 
heat traps.
Measured Versus Rated Volume
    The California Energy Commission proposed that the measured volume 
rather than the rated volume of water heaters be used in all analyses. 
(California Energy Commission, No. 24 at 3).
    With regard to how the Department should set water heater 
conservation standards, the California Energy Commission proposed that 
any standard be expressed as EF = A + (B * V), and not as EF = A - (B * 
V), so that an exaggeration of volume, V, by manufacturers would result 
in a more stringent standard. (California Energy Commission, No. 24 at 
3).
    The California Energy Commission also argued that tolerances 
between rated and measured volumes of 5 percent and 10 percent, 
respectively, for gas and electricity water heaters volumes, are too 
high. (California Energy Commission, No. 24 at 2).
    The energy conservation standards are in the form of equations that 
are a function of the volume of the water heater. A footnote refers to 
the volume as being rated volume. The DOE test procedure contains 
provisions to determine the measured or actual volume, but is silent on 
the rated volume which is established by the manufacturer. The 
tolerances to which the California Energy Commission are referring are 
those set by safety testing agency specifications and are not related 
to the energy efficiency program. In the vast majority of cases, the 
measured volume is lower than the rated volume. All of the 13 water 
heaters tested by the National Institute of Standards and Technology in 
support of the DOE test procedure had measured volumes below rated 
volumes. Furthermore, one out of six electric water heaters and one out 
of five gas water heaters tested by the National Institute of Standards 
and Technology exceeded the safety tolerances for rated volume. (55 FR 
42166, October 17, 1990 and 54 FR 1893, January 17, 1989). To conduct 
the analysis which forms the basis for today's notice in an accurate 
manner, the actual volume had to be used. To be consistent with that 
analysis, the Department is proposing that the volume referred to in 
the efficiency equation be the actual or measured volume. The 
Department believes that the use of measured volume rather than rated 
volume in the calculation will eliminate this issue.
Definitions in Test Procedure and Conservation Standards
    The California Energy Commission proposed that the coverage of the 
water heater test procedures and efficiency standards be consistent, 
i.e., the test procedure does not cover some classes and sizes of water 
heaters that otherwise would be covered by the efficiency standards. 
(California Energy Commission, No. 24 at 2-3).
    Modifications to the test procedures for water heaters, which 
address these issues, are contained in the Notice of Proposed 
Rulemaking referenced above.
Gas Research Institute Study
    Energen urged DOE to evaluate thoroughly a study commissioned by 
the gas industry on cost/efficiency of water heater designs. (Energen, 
No. 12 at 9.)
    The Department did review and use information from this Gas 
Research Institute study,\27\ particularly cost data for installation 
and reventing. The study was also useful in categorizing standby 
losses.
---------------------------------------------------------------------------

    \27\Ibid.
---------------------------------------------------------------------------

3. Direct Heating Equipment
    Classes. Among the comments on product classes, Southern Gas 
Association, Energen Corp. and Atlanta Gas Light Company proposed that 
direct heating product classes be expanded to separate each present 
class into two classes, one with and one without an electric cord. The 
division of product classes by capacity is not mentioned. Their 
arguments deal generally with economic and utility issues, i.e., the 
ability of products without an electric cord to provide heat if a power 
outage occurs, and the affordability of these products to lower-income 
people. (Southern Gas Association, No. 4 at 6; Energen, No. 12 at 12-
13; and AGLC, No. 29 at 3). The California Energy Commission stated 
that there are too many product classes for this product and proposed 
three classes which are wall (fan and gravity), floor (fan and 
gravity), and room (fan and gravity). (California Energy Commission, 
No. 24 at 4).
    As stated above, the Department does not believe that the ability 
of gas equipment to operate during electricity outages is a utility 
that requires separating the existing gravity product classes into 
those with and without a power cord. Instead, designs that use 
electricity are evaluated on their economic advantages and 
disadvantages. The Department has kept the four product class 
categories as designated by the National Appliance Energy Conservation 
Act. The categories are: fan-wall, gravity-wall, room, and floor. With 
respect to division by capacity, the Department kept the National 
Appliance Energy Conservation Act divisions during the engineering 
analyses. The current class divisions by capacity are necessary because 
of the manner in which direct heating equipment is evaluated by the DOE 
test procedure. The energy descriptor for this equipment, the annual 
fuel utilization efficiency, is a function of, among other things, the 
pilot fraction. The pilot fraction is defined as the energy input rate 
to the pilot light (Qp) divided by the steady-state heat input 
rate to the heater (Qin). As the pilot fraction decreases, the 
annual fuel utilization efficiency will increase. For each of the four 
categories of direct heating equipment (fan-wall, gravity-wall, room, 
floor), the pilot light input rate is constant. Thus, for heaters of 
two different capacities within the same category and with the same 
steady-state efficiency, the annual fuel utilization efficiency will 
always be higher for the larger capacity equipment. The division of 
classes by capacity is required to account for this relationship 
between the annual fuel utilization efficiency and the pilot fraction.
    Design options. The Gas Appliance Manufacturers Association stated 
that gravity-type direct heating units provide a unique utility in that 
they operate during an electrical power outage. In addition, gravity-
type equipment can be used where an external electrical source is not 
available. Because of these reasons, the Gas Appliance Manufacturers 
Association argued that design options requiring electricity should not 
be required for floor heaters, room heaters, or gravity wall furnaces. 
(Gas Appliance Manufacturers Association No. 40 at 6).
    As stated above, the Department does not believe that the ability 
of gas equipment to operate during electric outages is a utility that 
forecloses consideration of electricity-using design options for those 
appliances. Therefore, the Department considered, for economic 
justification, design options that would require electricity for 
gravity wall, floor, and room direct heating equipment.
    With regard to electronic ignition systems, both Southern Gas 
Association and North Carolina Public Service Co. stated that adding an 
automatic ignition system and electronic controls would add 
significantly to the price of direct heating equipment. The Southern 
Gas Association said it would add $190 while North Carolina Public 
Service Co. stated it would add $150 to $200. (Southern Gas 
Association, No. 4 at 7; North Carolina Public Service Co., No. 74 at 
5). The American Council for an Energy Efficient Economy said that 
intermittent ignition device and vent dampers should be considered 
separately. (American Council for an Energy Efficient Economy, No. 6 at 
3).
    The Department took into account all sources of available data when 
determining the cost of an electronic ignition system for direct 
heating equipment. Sources of data included manufacturers, suppliers, 
utilities, and published papers and reports. The electronic ignition 
design option was evaluated not only separately from any other design 
option, but also with other design options, including vent dampers.
    The Gas Appliance Manufacturers Association commented that 
increased insulation does not improve the energy efficiency of room 
heaters since this equipment is located within the heated space. (Gas 
Appliance Manufacturers Association, No. 40 at 6).
    The Department agrees with the Gas Appliance Manufacturers 
Association's comment and is not considering the increased insulation 
design option for room heaters or wall furnaces. Insulation is only 
applicable to floor furnaces as this equipment's intended installation 
is in an unconditioned crawl space.
    The Gas Appliance Manufacturers Association also commented that 
two-stage or modulating burners reduce the energy efficiency of direct 
heating equipment. (Gas Appliance Manufacturers Association, No. 40 at 
6).
    The Department agrees with the Gas Appliance Manufacturers 
Association's comment. When incorporated into a typical gravity or 
forced-air direct heater, i.e., heaters that are currently being 
manufactured, two-stage and modulating burners actually reduce the 
energy efficiency of direct heating equipment. Two-stage and modulating 
burners which are currently manufactured regulate the gas flow but not 
the air flow. Excess air is induced at lower gas-flow rates, resulting 
in lower combustion efficiencies when compared to a normal or maximum 
gas flow rate. Because of this, typical heaters equipped with two-stage 
or modulating burners will always have a lower energy efficiency, as 
measured by the DOE test procedure, than heaters equipped with single-
stage burners. The Department is not aware of any two-stage or 
modulating burners that regulate both the gas and air flow. The 
Department believes however, that it is possible to regulate the air 
flow being drawn into a two-stage or modulating burner if the direct 
heater is also equipped with a two-speed or variable-speed combustion 
fan, i.e., induced or forced draft system. With a multi-speed 
combustion fan, a low fan speed can be used to reduce the excess air 
that would normally occur at low gas flow rates. Thus, the steady-state 
efficiency that occurs at the high gas flow rate of a two-stage or 
modulating burner can be maintained at its lower gas flow rate. Since 
currently manufactured two-stage and modulating burners actually reduce 
energy efficiency in typical direct heating equipment, DOE is 
considering them as a design option only if they are incorporated into 
a heater already equipped with a multiple-speed induced or forced draft 
combustion system.
    The American Council for an Energy Efficient Economy said that DOE 
should consider two-speed or variable-speed blowers. (American Council 
for an Energy Efficient Economy, No. 6 at 3).
    The practical application of two-speed or variable-speed blowers is 
with two-stage or modulating burners. When heating loads are low, both 
the burner rate and the blower speed could be reduced. This would 
prevent cycling of the unit and reduce large fluctuations in room 
temperature. In addition, overall energy consumption could be reduced. 
As with two-stage and modulating burners, two-speed and variable-speed 
blowers will also be considered by the Department only on heaters 
already equipped with a multiple-speed induced or forced draft 
combustion system. This is because two-stage or modulating operation 
can improve system efficiency only if coupled with a device, i.e., a 
multi-speed combustion system that can regulate the air flow rate into 
a two-stage or modulating burner.
    The North Carolina Public Service Co. suggested that DOE consider 
whether blowers can be used in direct heating equipment with self-
generating pilots. (North Carolina Public Service Co., No. 74 at 5).
    It is not clear to what North Carolina Public Service is referring, 
as it fails to define clearly in its comment which blower it is 
discussing and what a self-generating pilot is. A blower could be 
interpreted as either an air circulation fan or an induced or power 
draft fan. The self-generating pilot is probably some type of 
electronic ignition device. The Department has evaluated all of the 
above-mentioned design options and has determined that blowers of any 
type can be used with electronic ignition systems.
    The Gas Appliance Manufacturers Association commented that for a 
replacement unit incorporating an increased heat exchanger surface 
area, condensate must be avoided in the existing vent system. This 
requirement results in limiting the combustion efficiency to 83 
percent. (Gas Appliance Manufacturers Association, 40 at 7).
    The Department agrees with the Gas Appliance Manufacturers 
Association's comment and considered venting issues in the analysis. 
Design options that increased the combustion efficiency over 83 percent 
require an additional installation charge to account for venting low-
temperature flue gases and draining condensate.
    Other comments. The Southern Gas Association, Energen, and the 
Atlanta Gas Light Company recommended baseline units for direct heating 
equipment. (Southern Gas Association, No. 4 at 8; Energen, No. 12 at 
15,16; Atlanta Gas Light Company, No. 29 at 4).
    The Department considered these comments regarding baseline units 
in the Engineering Analysis. Baseline unit efficiency levels for each 
of the direct heating product classes have been set at the standard 
levels established by the National Appliance Energy Conservation Act. 
Of the units currently produced, the National Appliance Energy 
Conservation Act minimum efficiency standards are representative of the 
efficiency levels that presently exist for most models.
    Minnegasco said that installation and maintenance expenses for 
direct heating products are important, and that DOE must consider them. 
(Minnegasco, No. 83 at 3).
    The Department has considered these expenses in the analysis of 
direct heating equipment. The increase in consumer expenses caused by a 
design option includes not only the increase in retail price, but also 
any additional installation and maintenance expenses that result from 
incorporating that design option into the equipment.
    Southern Gas Association contended that more efficient direct 
heating equipment would have a severe economic impact on lower-income 
and elderly consumers, and that low usage in Southern states should be 
evaluated. (Southern Gas Association, No. 4 at 7,10). Minnegasco also 
commented on the issue of low usage by urging DOE to consider regional 
usage when performing the engineering analysis. (Minnegasco, No. 83 at 
2).
    The Department has lowered its usage assumption by using the 
modified burner operating hours contained in the Notice of Proposed 
Rulemaking mentioned above for furnace test procedures. The proposed 
burner operating hours for direct heating equipment has been revised 
downward to account for the regional distribution of this product 
disproportionately to the southern half of the Nation. The Department 
has no data with which to measure the standards' impacts on elderly and 
lower-income consumers in determining whether a standard level is 
economically justified; however, DOE will consider the financial effect 
that the standard has on such consumers.
    In the Advance Notice for this rulemaking, the Department described 
how it performs sensitivity analyses to help it understand the effects 
on the forecasted impacts because of changes in the exogenous variables 
and assumptions. (55 FR 39633).
    Those sensitivities were developed at the national level, and no 
effort was made to link them with any specific population groups. With 
the exception of the direct heating equipment analysis discussed above, 
the standards analysis assumed that nationwide average appliance usage 
rates, energy prices, and efficiency applied to all consumers in all 
areas of the nation, although the Department recognized that there 
exist large variations in each of these factors. The Department seeks 
additional information concerning the extent to which any proposed 
national efficiency standard is likely to affect identifiable groups of 
consumers disproportionally and, especially how best to consider such 
impacts in the selection of efficiency standard levels. The Department 
is also seeking additional data to help it better assess the 
disproportionate impacts on such groups.
4. Mobile Home Furnaces
    Design options. The Gas Appliance Manufacturers Association stated 
that an intermittent ignition device design is not appropriate to 
mobile home furnaces. The Gas Appliance Manufacturers Association 
stated there is almost no flow through the heat exchanger during the 
off-cycle. If the intermittent ignition device failed, a gas-air 
mixture could build up and possibly lead to an explosion when the 
intermittent ignition device is activated. (Gas Appliance Manufacturers 
Association, No. 40 at 7).
    The Department accepted Gas Appliance Manufacturers Association's 
comment and did not consider an intermittent ignition device plus vent 
damper as an engineering design for mobile home furnaces.
    American Council for an Energy Efficient Economy proposed 
intermittent ignition devices and vent dampers be separately considered 
and that two-speed or variable-speed blowers be evaluated. (American 
Council for an Energy Efficient Economy, No. 6 at 4).
    The Department has accepted these approaches. The intermittent 
ignition device with fan-forced combustion has been considered as one 
option, while the combustion box damper has been considered as a 
separate option. A combustion box damper has the same effect on 
efficiency as a vent damper for isolated combustion-type systems. 
Mobile home furnaces are required to have isolated combustion systems 
by the Housing and Urban Development code. Both two-stage and 
continuously modulated burners were included in the final list of 
design options.
    Evcon commented that vent dampers are inappropriate designs because 
of damper location and isolated combustion design. (Evcon, No. 76 at 
1).
    The Department has considered combustion box dampers instead of 
vent dampers. The Department knows of no design considerations that 
would render combustion box dampers inappropriate.
    Evcon also suggested that condensing designs and intermittent 
ignition devices are inappropriate because of excessive cost. (Evcon, 
No. 76 at 1-2).
    The Department has incorporated the costs for materials, 
components, maintenance, and installation into the Engineering 
Analysis.
    Evcon further commented that expense and noise problems exist with 
pulsed combustion furnaces. (Evcon, No. 76 at 1).
    The Department acknowledges these points and notes that pulsed 
combustion is no longer on the list of design options. In eliminating 
this design option, the Department reasoned that non-pulsed combustion 
technology can achieve efficiencies equivalent to pulsed-combustion 
technology at a lower cost. This is particularly true for manufacturers 
having to pay patent royalties for pulse combustion technology. 
Manufacturing cost data from the manufacturers supported this 
conclusion.
    Lastly, Evcon commented that corrosion and cost problems exist with 
two-stage and modulating burner designs. (Evcon, No. 76 at 2).
    In the Engineering Analysis, the Department assumed that material 
costs (for the concentric flue/supply air assembly) would increase 
because of the need to design for possible intermittent condensation in 
two-stage non- condensing furnaces. Non-condensing modulating furnaces 
are not included in the present list of design options.
    Other comments. Gas Appliance Manufacturers Association also 
commented that replacement furnaces must be able to fit into the same 
spaces as the units being replaced. (Gas Appliance Manufacturers 
Association, No. 40 at 7).
    The Department does not believe that any of the studied design 
options would result in significant space problems.
    Evcon also commented that American Society of Heating, 
Refrigerating, and Air-conditioning Engineers Standard 103-1982 is 
inadequate for the testing of various design options and urged that 
American National Standards Institute/American Society of Heating, 
Refrigerating, and Air-conditioning Engineers Standard 103-88 be 
adopted. (Evcon, No. 76 at 2).
    Modifications to the test procedures for furnaces, which address 
these issues, are contained in the Notice of Proposed Rulemaking 
referenced above.
5. Kitchen Ranges and Ovens
    Classes. The comments on classes for conventional ranges and ovens 
ranged from Aloha Systems Inc.'s recommendation that all electric 
cooktops be one product class to Association of Home Appliance 
Manufacturers's proposal to add several classes to those proposed in 
the Advanced Notice of Proposed Rulemaking. Specifically, the 
Association of Home Appliance Manufacturers recommended that DOE add, 
as classes, electric cooktops with grill/griddle without downdraft 
feature, and for gas cooktops--grill/griddle with downdraft feature, 
grill/griddle without downdraft feature with and without an electric 
cord, and warming/simmer burners. (Aloha Systems, Inc., No. 2 at 1; and 
Association of Home Appliance Manufacturers, No. 61A at 38).
    Several comments supported the range/oven product classes that were 
listed in the Advanced Notice of Proposed Rulemaking. Four gas 
utilities, Southern Gas Association, Energen, South Carolina Electric 
and Gas Company - Gas Operations, and the Oklahoma Natural Gas Co., all 
supported the classes selected by DOE for gas cooktops and gas ovens. 
(Southern Gas Association, No. 4 at 7; Energen, No. 12 at 14; South 
Carolina Electric and Gas Company - Gas Operations, No. 34 at 6; and 
the Oklahoma Natural Gas Co., No. 57 at 6).
    The rest of the comments on range/oven product classes argued that 
the Department had proposed far too many different classes in the 
September 1990 advance notice. As mentioned, Aloha Systems, Inc. 
recommended a single product class for electric cooktops. The American 
Council for an Energy Efficient Economy, the Natural Resources Defense 
Council, the California Energy Commission, and the Ohio Office of the 
Consumers' Council all stated that there are too many classes for 
conventional ranges and ovens. (Aloha Systems, Inc. No. 2 at 1; 
American Council for an Energy Efficient Economy, No. 6 at 1; Natural 
Resources Defense Council, No. 13 at 25, California Energy Commission, 
No. 24 at 5; and Ohio Office of the Consumers' Council, No. 60 at 9). 
ENTEX proposed that the Department specify freestanding, drop-in, and 
slide-in ovens and wall ovens as one class. (ENTEX, No. 58 at 6). 
Whirlpool Corporation, a manufacturer of ranges and ovens, suggested 
that DOE not analyze those classes with low sales volumes, and instead 
restrict the analysis to the following nine classes: Electric cooktops 
with open coil elements; electric cooktops with solid disk elements; 
standard or catalytic electric ovens; self-cleaning electric ovens; 
conventional or sealed burner gas cooktops (with and without power 
cords); standard or catalytic gas ovens (with and without power cords) 
and self-cleaning gas ovens. (Whirlpool Corporation, No. 31 at 16). 
Association of Home Appliance Manufacturers stated that three of the 
classes listed in the Advanced Notice of Proposed Rulemaking for gas 
cooktops, conventional burners with electrical cords, conventional 
burners without electrical cords and sealed burners, should be 
consolidated into two classes, namely, conventional and sealed burners 
with electrical cords and conventional and sealed burners without 
electrical cords. (Association of Home Appliance Manufacturers, No. 61A 
at 47, 48).
    After considering the comments and reviewing the data, the 
Department believes that many of the classes proposed in the September 
advance notice were not warranted on a utility and performance basis.
    For this proposed rule, four product classes were considered for 
electric cooktops: Low or high wattage open (coil) elements, smooth 
cooktops, grill with or without downdraft feature, and griddle with or 
without downdraft feature. The baseline cooktop element selected for 
smooth cooktops is a solid disk element. As compared to open coil 
element cooktops, smooth cooktops are much easier to clean. Because 
cleanability is a consumer utility, the Department believes that a 
separate class is warranted for smooth cooktops. Induction cooking, 
halogen lamps, and radiant elements were considered as design options 
for smooth cooktops and assessed according to the economic 
characteristics of the particular design. Because of the small amount 
of empirical data on grill and griddle cooktops, the Department was 
unable to analyze these classes. In addition, the DOE test procedure is 
presently unable to measure grill or griddle energy consumption, and 
the Department has not proposed to include the testing of grills or 
griddles. As a result, the Department is not proposing any standard for 
these two classes.
    Four product classes are now considered for gas cooktops: 
Conventional burners, grill with or without downdraft feature, griddle 
with or without downdraft feature, and warming/simmer burners. For 
other designs, the Department does not believe that significant utility 
issues exist, for example, in the ability of the appliance to operate 
during electric outages, which would require that classes be 
established into gas cooktops with and without electrical cords. 
Between 90 and 93 percent of residential electricity customers 
experience no electric outages longer than four hours per year.\28\ 
Designs which use electricity were evaluated on their economic 
advantages and disadvantages. Other classes in the Advance Notice of 
Proposed Rulemaking (sealed and radiant burners) were considered as 
design options for conventional cooktops. There were no utility issues 
warranting separate classes for sealed and radiant burners. As with 
electric cooktops, because of the small amount of empirical data on 
grill and griddle cooktops and warming burners, the Department was 
unable to analyze these classes. In addition, the DOE test procedure is 
presently unable to measure grill, griddle or warming burner energy 
consumption, and the Department has not proposed to include the testing 
of grills, griddles or warming burners. As a result, the Department is 
not proposing any standard for these three classes.
---------------------------------------------------------------------------

    \28\A.P. Sanghvi, 1990. Cost-Benefit Analysis of Power System 
Reliability: Determination of Interruption Costs. Prepared by RCG/
Hagler/Bailly Inc. for Electric Power Research Institute EL-6791, 
vol 2, p3-3.
---------------------------------------------------------------------------

    Two product classes were considered for electric ovens: Standard 
ovens with or without catalytic linings and self-cleaning ovens. Oven 
types that were listed as classes in the September 1990 advance notice 
(forced convection for cooking, forced convection for cleaning, halogen 
lamp, and steam cooking with and without pressure) were considered as 
design options. The Department believes that no utility issues exist 
warranting additional classes beyond standard and self-cleaning ovens.
    As with electric ovens, two product classes were considered for gas 
ovens: Standard ovens and self-cleaning ovens. Oven types that were 
listed as classes in the September 1990 advance notice (radiant burner 
and convection) were considered as design options. In addition, the 
Department does not believe that significant utility issues exist in 
the ability of the appliance to operate during electric outages, which 
would require that classes be established into those with and without 
electrical cords. Designs which use electricity are evaluated on their 
economic advantages and disadvantages.
    As for microwave oven classes, both Whirlpool Corporation and 
Association of Home Appliance Manufacturers recommended that the 
Department limit its analysis to microwave ovens with and without 
browning elements, the classes which accounted for 96.8 percent of 
domestic shipments in 1989. (Whirlpool Corporation, No. 31 at 9; 
Association of Home Appliance Manufacturers, No, 61A at 30).
    The Department rejected the proposals to limit the analysis to two 
product classes: conventional microwave ovens with and without browning 
elements. The Department combined these ovens into one class. Since the 
test procedure does not measure the energy use of the browning element, 
there is no need to separate these two kinds of ovens into classes; 
therefore, only one class of microwave ovens was analyzed.
    Design options. There were numerous comments on the design options 
for ranges/ovens and microwave ovens. Natural Resources Defense Council 
recommended that DOE study (for ranges/ovens) reduction in thermal 
mass, catalytic burners, reflective surfaces, the biradiant concept, 
and improved magnetrons for microwave ovens. (Natural Resources Defense 
Council, No. 13 at 27-28). Aloha Systems, Inc. said that induction 
cooking is the most efficient method. (Aloha Systems, Inc., No. 2 at 
1,2). American Council for an Energy Efficient Economy proposed that 
DOE evaluate the infrared jet gas burner for conventional ovens, and 
for microwave ovens, advanced transformer winding and core materials, 
and the high-efficiency electronic controller (which turns power on and 
off). (American Council for an Energy Efficient Economy, No. 6 at 4). 
The Rocky Mountain Institute proposed that DOE study improved controls 
that allow the resistance element to ``coast'' the food to completion. 
A reference to European tests was given, stating that this design 
requires a thermostat and temperature control knob and saves 20 percent 
or more of the energy. (Rocky Mountain Institute, No. 15 at 5). The 
Oklahoma Natural Gas Co. suggested that thermostatically controlled gas 
burners be replaced by various-sized (Btu/h input and dimensions) and 
manually controlled surface burners to accommodate different-size 
cookware. (Oklahoma Natural Gas Co., No. 57 at 6). The Association of 
Home Appliance Manufacturers provided comments on each design option 
for ranges/ovens and microwave ovens. (Association of Home Appliance 
Manufacturers, No. 61A at 30-62). Whirlpool Corporation supported the 
Association of Home Appliance Manufacturers' comments on ranges/ovens 
and microwave ovens. (Whirlpool Corporation, No. 31 at 16, 19).
    For gas cooktops, the Association of Home Appliance Manufacturers 
stated that thermostatically controlled gas burners are not effective 
at controlling temperature. The sensing element which is designed to 
make contact with the cooking vessel will not allow effective control 
if the cooking utensil has an uneven bottom in the area where it is to 
be ``sensed.'' In addition, since the electric sensing element will 
retain heat due to its mass, reaction times could be delayed, thus 
allowing wide swings in the thermostatically selected temperature. The 
DOE test procedure also cannot measure the effect of thermostatically 
controlled burners. (Association of Home Appliance Manufacturers, No. 
61A at 54, 55.) The Association of Home Appliance Manufacturers stated 
that the performance of reflective surfaces is degraded significantly 
from reaction to cooking vapors, burnt-on spillovers and cleaning with 
abrasive pads. To maintain reflective surfaces it would be necessary to 
replace these expensive units periodically. The Association of Home 
Appliance Manufacturers felt that the energy savings from reflective 
surfaces are very small. (Association of Home Appliance Manufacturers, 
No. 61A at 56, 57.) With regard to insulation, the Association of Home 
Appliance Manufacturers stated it is occasionally used in gas cooktops 
where there are surface temperature problems on the surrounding 
structures. The insulation is attached outside of the burner box. Any 
other placement would impair utility, because the space underneath the 
countertop cooktop unit (that is designed to fit in drawers) would 
become significantly reduced.
    The Association of Home Appliance Manufacturers also felt that the 
energy savings from insulation is very small. (Association of Home 
Appliance Manufacturers, No. 61A at 56, 57.) In its comments regarding 
product classes, the Association of Home Appliance Manufacturers, 
though it suggested that both conventional and sealed burners be 
considered as one class, stated that it is incorrect to assume that 
sealed burners are more efficient than conventional burners. Sealed 
burners obtain all of their secondary air from above the cooktop, which 
requires that either the grate height be raised or the burner be 
derated in order for it to be as efficient as conventional burners. 
(Association of Home Appliance Manufacturers, No. 61A at 47, 48.) The 
Association of Home Appliance Manufacturers stated that radiant burners 
should be considered as a product class rather than a design option and 
went on to state several problems with these burner types. Since 
radiant burners use a powered pre-mix burner, carbon monoxide control 
is more critical, and the burner flame can only be varied by 30 
percent. Test work performed by the Gas Research Institute with the 
American Gas Association Laboratories on prototypes has revealed that 
low burner rate is difficult to maintain. This means that current 
prototypes would not meet American National Standards Institute 
standards. The Association of Home Appliance Manufacturers also stated 
that burner efficiency might be no better than conventional burners. 
(Association of Home Appliance Manufacturers, No. 61A at 49-51.)
    The Department took into account all sources of available data when 
determining the cost and energy savings from thermostatically 
controlled burners, reflective surfaces, and sealed burners. Sources of 
data included the Association of Home Appliance Manufacturers, 
manufacturers, suppliers, and published papers and reports. Lack of any 
available data regarding catalytic burners, high efficiency electronic 
controllers, and insulation prevented the Department from analyzing 
these design options. The Department agrees with the Association of 
Home Appliance Manufacturers' comments regarding radiant gas burners. 
Because there is no prototype that works satisfactorily, it is not 
possible to determine if this design option is technologically 
feasible.
    For electric open coil cooktops, the Association of Home Appliance 
Manufacturers stated that the contact conductance of open coil elements 
cannot be significantly improved. Manufacturers have worked together to 
improve the flatness of this element type, and have produced an element 
that is doing an excellent job. (Association of Home Appliance 
Manufacturers, No. 61A at 57, 58.) The reflective surface and 
insulation design options cause the same problems for electric open 
coil cooktops as for gas burners. See comments, supra, for gas 
cooktops. (Association of Home Appliance Manufacturers, No. 61A at 58.)
    Manufacturers' data provided by the Association of Home Appliance 
Manufacturers and published reports\29\ were used by the Department to 
analyze the effects from improved contact conductance and reflective 
surfaces. Cost data were also provided by these sources. The electronic 
controls referred to by the American Council for an Energy Efficient 
Economy and the Rocky Mountain Institute cannot be evaluated by the DOE 
test procedure. Different types of tests based on boiling water have 
been used to evaluate electronic controls. But boiling water tests have 
yet to be standardized by DOE as a method to rate cooktops. Therefore, 
this design option was not analyzed by the Department.
---------------------------------------------------------------------------

    \29\``Costing Analysis of Design Options for Residential 
Appliances and Space Conditioning Equipment,'' Lawrence Berkeley 
Laboratory, prepared by ADM Associates, Inc., Purchase No. 4541710, 
December 1987, ``Energy Efficient Electrical Product Knowledge 
Base,'' Canadian Electrical Association, prepared by ORTECH 
International, C.E.A. No. 821 U 678, October 1989, M. Shepard, A.B. 
Lovins, J. Neymark, D.J. Houghton, and H.R. Heede, ``The State of 
the Art: Appliances,'' Rocky Mountain Institute, Competitek, August 
1990 Edition, and U.S. Department of Energy Engineering Analysis, 
DOE/CS-0166, June 1980.
---------------------------------------------------------------------------

    For electric smooth cooktops, the Association of Home Appliance 
Manufacturers's comments on product classes proposed separate classes 
for solid disk elements, radiant elements under glass, halogen elements 
under glass, and induction elements. The Association of Home Appliance 
Manufacturers commented that though solid disk elements are inherently 
less efficient than open coil elements, they should be a separate class 
because of the additional utility in their ease of cleaning. 
(Association of Home Appliance Manufacturers, No. 61A at 39, 40). With 
regard to radiant and halogen elements under glass, the Association of 
Home Appliance Manufacturers commented that not only are these cooktops 
easy to clean because of their smooth surfaces, but additional work 
space is gained when the cooktop surface is not in use. The Association 
of Home Appliance Manufacturers also stated that the recommended 
cookware for halogen elements are metal pots and pans, since glass and 
ceramic cookware are not good heat conductors. (Association of Home 
Appliance Manufacturers, No. 61A at 40, 41). The Association of Home 
Appliance Manufacturers stated that since induction elements heat items 
by transferring electromagnetic energy, the glass or ceramic countertop 
under which they lie is unaffected and remains relatively cool. This 
also means that the cookware used with induction elements must be made 
from magnetic materials. The Association of Home Appliance 
Manufacturers listed the following advantages of induction cooking: 
fast response and control of heat source, ease of cleaning (since food 
spills do not burn onto the cooking surface), and the ability to heat 
utensils that are not flat. The Association of Home Appliance 
Manufacturers pointed out that because the DOE test procedure uses non-
magnetic aluminum blocks, it is not suitable for testing induction 
elements. (Association of Home Appliance Manufacturers, No.61A at 41-
43).
    As stated in the discussion of product classes, the Department has 
established two classes for electric cooktops (open coil and smooth), 
and believes that radiant, halogen, and induction elements offer no 
consumer utility which prevents them from being analyzed as design 
options for smooth cooktops. Solid disk elements are treated as the 
baseline unit for smooth cooktops. Data provided by the Association of 
Home Appliance Manufacturers, cooktop manufacturers, suppliers, and a 
published report\30\ were used in the analysis of smooth cooktops. Data 
were provided which evaluated radiant, halogen, and induction elements 
according to the DOE test procedure. The Department test results were 
obtained for induction elements by attaching a ferro-magnetic material 
to the aluminum test block. As with open coil elements, different types 
of tests based on boiling water have been used to evaluate electronic 
controls for smooth cooktops. But boiling water tests have yet to be 
standardized by DOE as a method to rate cooktops. Therefore, this 
design option was not analyzed by the Department.
---------------------------------------------------------------------------

    \30\M. Shepard, A.B. Lovins, J. Neymark, D.J. Houghton, and H.R. 
Heede, ``The State of the Art: Appliances,'' Rocky Mountain 
Institute, Competitek, August 1990 Edition.
---------------------------------------------------------------------------

    In its comments on design options for gas and electric ovens, the 
Association of Home Appliance Manufacturers stated that since the DOE 
test procedure does not require maintaining heat in the oven over a 
period of time, improving the insulation in the cabinet will not show 
any energy savings. (Association of Home Appliance Manufacturers, No. 
61A at 58). With regard to reduced vent size, the Association of Home 
Appliance Manufacturers stated that this design option should be 
considered only for electric ovens, not for gas ones. It then proceeded 
to state how any reductions in vent size will negatively impact cooking 
and baking performance as well as safety. (Association of Home 
Appliance Manufacturers, No. 61A at 58, 59). The Association of Home 
Appliance Manufacturers stated that, according to the DOE test 
procedure, existing instrumentation cannot measure the small energy 
efficiency gains that result from reducing conduction losses. 
(Association of Home Appliance Manufacturers, No. 61A at 59). As with 
cooktops, the Association of Home Appliance Manufacturers stated that 
reflective surfaces degrade quickly in ovens. This significantly 
reduces their impact on energy use over the life of the product. 
(Association of Home Appliance Manufacturers, No. 61A at 59, 60). The 
Association of Home Appliance Manufacturers asserted that oven thermal 
mass cannot be reduced. Further reductions in the gauge of the oven 
wall material may result in cracking and heat loss. (Association of 
Home Appliance Manufacturers, No. 61A at 60). The Association of Home 
Appliance Manufacturers stated that an oven separator to reduce oven 
thermal mass would pose potential safety problems due to improper 
installation, gas combustion considerations, and the handling of the 
separator by the consumer. No test procedure currently exists to 
certify the safety or performance of an oven using a separator. In 
addition, the Association of Home Appliance Manufacturers questioned 
the separator's utility, as consumers already use microwave and toaster 
ovens for small loads. The Association of Home Appliance Manufacturers 
also questioned whether the DOE test procedure could evaluate this 
design option. (Association of Home Appliance Manufacturers, No. 61A at 
60-62).
    For electric ovens, the Association of Home Appliance Manufacturers 
proposed separate product classes for forced convection ovens for 
cooking and cleaning, halogen lamp ovens, and steam cooking ovens. The 
Association of Home Appliance Manufacturers stated that due to unique 
operating characteristics a separate class should be adopted for 
convection ovens. (Association of Home Appliance Manufacturers, No. 61A 
at 45, 46). With regard to halogen lamp ovens, the Association of Home 
Appliance Manufacturers asserted that the baking performance is 
relatively poor compared to the characteristics of a conventional 
electric oven. But since it may have certain advantages for broiling 
applications, the Association of Home Appliance Manufacturers said it 
should be a separate class. (Association of Home Appliance 
Manufacturers, No. 61A at 46). Since no United States manufacturer is 
currently producing steam ovens and because the food products that can 
be cooked or baked by this oven type are limited, the Association of 
Home Appliance Manufacturers said it should be adopted as a separate 
class. (Association of Home Appliance Manufacturers, No. 61A at 47).
    As stated in the discussion of product classes, the Department has 
established two product classes for electric ovens (standard and self-
cleaning), and analyzed halogen lamp, convection, and steam cooking as 
design options for electric ovens. The design options commented on by 
the Association of Home Appliance Manufacturers and others have all 
been considered for electric ovens. This includes the biradiant oven 
concept that was referred to by the Natural Resources Defense Council. 
Data provided by the Association of Home Appliance Manufacturers, oven 
manufacturers, suppliers, and published reports\31\ were used in the 
analysis of electric ovens. Manufacturers' data supplied by the 
Association of Home Appliance Manufacturers were the only source of 
cost and efficiency data provided to analyze oven separators. The 
improved insulation and reduced vent size design options were analyzed 
only for standard electric ovens. Insulation improvement levels and 
vent size reductions for standard ovens were selected to bring their 
baseline unit to the same efficiency level as the baseline unit 
selected for self-cleaning ovens. The Department received no data that 
indicated that insulation could be improved beyond the baseline level 
for self-cleaning ovens. In addition, any further reductions in vent 
size were assumed to jeopardize both oven safety and cooking 
performance. The Department did not receive any energy-use or cost data 
concerning the halogen lamp and steam cooking design options, thus 
preventing them from being analyzed for electric ovens.
---------------------------------------------------------------------------

    \31\``Costing Analysis of Design Options for Residential 
Appliances and Space Conditioning Equipment,'' Lawrence Berkeley 
Laboratory, prepared by ADM Associates, Inc., Purchase No. 4541710, 
December 1987, ``Energy Efficient Electrical Product Knowledge 
Base,'' Canadian Electrical Association, prepared by ORTECH 
International, C.E.A. No. 821 U 678, October 1989, U.S. Department 
of Energy Engineering Analysis, DOE/CS-0166, June 1980, and D.P. 
DeWitt and M.V. Peart, ``Bi-Radiant Oven a Low-Energy Oven System,'' 
Purdue University, prepared for Oak Ridge National Laboratory, April 
1980, ORNL/Sub-80/0082/1, ORNL/Sub-80/0082/2, ORNL/Sub-80/0082/3.
---------------------------------------------------------------------------

    For gas ovens, the Association of Home Appliance Manufacturers 
proposed separate product classes for standard and self-cleaning 
convection ovens and radiant burner gas ovens. As with electric 
convection ovens, the Association of Home Appliance Manufacturers said 
the unique operating characteristics of the convection oven warrant a 
separate class. (Association of Home Appliance Manufacturers, No. 61A 
at 53). For radiant burner gas ovens, the Association of Home Appliance 
Manufacturers made reference to its comments on radiant burners for gas 
cooktops. (Association of Home Appliance Manufacturers, No. 61A at 53).
    As stated in the discussion of product classes, the Department has 
established two product classes for gas ovens (standard and self-
cleaning). The Department believes that convection and radiant burner 
gas ovens should be analyzed as design options. A separate class would 
be warranted if lower efficient design options had consumer utility 
relative to convection and radiant burner gas ovens. The design options 
commented on by the Association of Home Appliance Manufacturers and 
others have all been considered for gas ovens. The bi-radiant oven 
concept referred to by the Natural Resources Defense Council was 
determined to be applicable to electric ovens only.\32\ Data provided 
by the Association of Home Appliance Manufacturers, manufacturers, 
suppliers, and published reports\33\ were used in the analysis of gas 
ovens. Manufacturers' data supplied by the Association of Home 
Appliance Manufacturers were the only source of cost and efficiency 
data provided with which the Department could analyze oven separators. 
As with electric ovens, the improved insulation and reduced vent size 
design options were analyzed only for standard gas ovens. The 
Department did not receive any energy-use or cost data concerning the 
radiant burner gas oven, thus preventing it from being analyzed.
---------------------------------------------------------------------------

    \32\D.P. DeWitt and M.V. Peart, ``Bi-Radiant Oven a Low-Energy 
Oven System,'' Purdue University, prepared for Oak Ridge National 
Laboratory, April 1980, ORNL/Sub-80/0082/1, ORNL/Sub-80/0082/2, 
ORNL/Sub-80/0082/3.
    \33\``Costing Analysis of Design Options for Residential 
Appliances and Space Conditioning Equipment,'' Lawrence Berkeley 
Laboratory, prepared by ADM Associates, Inc., Purchase No. 4541710, 
December 1987, ``Energy Efficient Electrical Product Knowledge 
Base,'' Canadian Electrical Association, prepared by ORTECH 
International, C.E.A. No. 821 U 678, October 1989, U.S. Department 
of Energy Engineering Analysis, DOE/CS-0166, June 1980.
---------------------------------------------------------------------------

    For microwave ovens, the Association of Home Appliance 
Manufacturers stated that high-grade stainless steel (or reflective 
material steel coating) would be more efficient than painted cold-
rolled steel by approximately one percent. (Association of Home 
Appliance Manufacturers No. 61A at 30-33). The Association of Home 
Appliance Manufacturers stated that a small efficiency improvement may 
be available if fan air flow is increased or if motor energy 
consumption is decreased. (Id. at 32). The Association of Home 
Appliance Manufacturers said that magnetron efficiency has reached its 
maximum at 72 percent. (Id. at 33). The Association of Home Appliance 
Manufacturers stated that solid-state power supplies are not more 
efficient, but cost more. At low power levels, improved performance is 
expected because they eliminate the on/off cycling used by other power 
supplies. (Id. at 34). The Association of Home Appliance Manufacturers 
stated that there are no data available to suggest that solid-state 
microwave generators would increase the generating efficiency over the 
70+ percent efficiency available in today's magnetrons. (Id. at 34). 
The Association of Home Appliance Manufacturers said that a modified 
wave guide may decrease energy absorption by one percent. (Id. at 35). 
The Association of Home Appliance Manufacturers stated that microwave 
oven models with fan-type stirrers use a cover over the fan to prevent 
inadvertent damage to the fan when inserting or removing food and to 
prevent degradation of the wave guide due to food splatter. While these 
ceramic stirrer covers may absorb some microwave energy, they are 
essential for protecting the stirrer and to prevent accumulation of 
food splatter inside the wave-guide. (Association of Home Appliance 
Manufacturers No. 61A at 35).
    The Department has utilized the Association of Home Appliance 
Manufacturers's estimates for energy savings from improved magnetrons, 
reflective surfaces, modified wave guides, and more efficient fans. 
After considering the Association of Home Appliance Manufacturers's 
comments, the Department has also excluded solid-state microwave 
generators and modified food stirrers from its cost/efficiency tables. 
The Department has generated data for, and included a more efficient 
power supply in, its cost/efficiency analysis for microwave ovens.
    Arkansas Western Gas said that maintenance and installation should 
be considered. (Arkansas Western Gas, No. 64 at 7).
    Maintenance and installation costs were considered for ranges and 
ovens. The Department determined that the only design option which 
required additional maintenance costs was electronic ignition for gas 
cooktops. Using data obtained from electronic ignition manufacturers, 
the Department established a price for replacing malfunctioning 
electronic ignition devices. A retirement function based on data 
received from electronic ignition manufacturers and service technicians 
was used to establish the rate of failure of these control devices. 
With the retirement function and replacement cost, the expected 
maintenance expense was then determined.
    Mr. Rajendra Narang provided patents for improving the efficiency 
of gas ranges/ovens. These included, for ovens: Combustion air 
preheated by discharge gases, heated discharge gases discharged only 
when combustion occurs, and circulation fans for better airflow; for 
cooktops: an efficient piloted ignition and flame containing burner 
rings to support pots and pans. (Narang, No. 82).
    The Department was not able to assess the energy savings from most 
of the design options presented by Mr. Narang. (Circulation fans were 
analyzed, however.) Experimental data and simulation models were not 
available to allow evaluation of these design options.
    Other comments. The Association of Home Appliance Manufacturers 
recommended that the usage assumptions for ranges/ovens be decreased to 
account for changes in lifestyles since the original usage values were 
estimated. The Association of Home Appliance Manufacturers said the 
reductions in energy use are from 68 to 74 percent for cooktops and 
ovens. (Association of Home Appliance Manufacturers, No. 61 at 38). 
Whirlpool Corporation stated that DOE should revise the test procedure 
to account for lower usage; the present test procedure overstates usage 
for cooktops and ovens by 70 and 76 percent, respectively. (Whirlpool 
Corporation, No. 31 at 17). The American Council for an Energy 
Efficient Economy also recommended that the usage values be updated. 
(American Council for an Energy Efficient Economy, No. at 2). Finally, 
Arkansas Western Gas said range use is down, and that gas use is so low 
(6Mcf) that any conservation item will have little effect. (Arkansas 
Western Gas, No. 64 at 6).
    As stated previously, the Department has proposed revised test 
procedures for kitchen ranges and ovens. The Department used the 
proposed test procedure, including the more current field usage 
numbers, for the analyses in today's notice. The new annual useful 
cooking energy output values were determined to be 209.4 kWh for 
electric cooktops, 732.5 kBtus for gas cooktops, 35.5 kWh for electric 
ovens, and 124.2 kBtus for gas ovens.
    With regard to potential microwave oven standards, the Association 
of Home Appliance Manufacturers contended that such standards would 
have an insignificant effect on energy consumption. (Association of 
Home Appliance Manufacturers, No. 61A at 29).
    The Department analyzed quantitatively the energy-saving potential 
of standards on microwave ovens and found that significant savings are 
possible. (See Technical Support Document, Chapter 5).
    With respect to the usage values for microwave ovens, Whirlpool 
Corporation stated that microwave energy use has increased 
significantly, and DOE should initiate a new study to determine a 
reasonable estimated energy use for microwave ovens. (Whirlpool 
Corporation, No. 31 at 19). Citing the Electronic Industries 
Association's estimated 100 kWh/yr usage for microwave ovens in 1987, 
the Association of Home Appliance Manufacturers stated that it was 
consistent with its 1976 data showing 75 kWh/yr usage because, although 
average family size has decreased, microwave oven use within the 
household has increased. (Association of Home Appliance Manufacturers, 
No. 61A at 27).
    As with the usage number for conventional ranges and ovens, the 
Department used the proposed test procedure usage values for the 
analysis of microwave ovens. The Department obtained the proposed 
energy use values from several utility conditional demand studies 
resulting in the proposed usage value of 270 kWh/yr for microwave 
ovens.
    Lastly, some comments urged changes in the ranges and ovens test 
procedure as well as the microwave oven test procedure. Aloha Systems, 
Inc. commented that the present test procedure using an aluminum block 
is not realistic, and that induction cooking cannot be evaluated with 
the present test procedure since that procedure requires iron pots and 
pans. (Aloha Systems, Inc., No. 2, at 2). Whirlpool Corporation and the 
Association of Home Appliance Manufacturers both urged the Department 
to change its microwave test procedure to the 1988 International 
Electrotechnical Commission test procedures for measuring microwave 
power and energy use. (Whirlpool Corporation, No. 31 at 18; Association 
of Home Appliance Manufacturers No. 61A at 25.)
    Modifications to the test procedures for kitchen ranges and ovens, 
which address these issues, are contained in the Notice of Proposed 
Rulemaking referenced above.
6. Pool Heaters
    Classes. With regard to comments on pool heater classes, Southern 
Gas Association, Energen, South Carolina Gas and Electric, Laclede, and 
the Oklahoma Gas Co. proposed that an additional product class for pool 
heaters be established--gas pool heaters with automatic ignition. 
(Southern Gas Association, No. 4 at 8; Energen, No. 12 at 15; South 
Carolina Gas and Electric, No. 34 at 6; Laclede, No. 55 at 6; and 
Oklahoma Gas Company, No. 57 at 7.)
    The Department believes there is no significant difference in 
consumer utility between gas-fired pool heaters which use electricity 
and those which do not. In addition, pool heaters are customarily 
installed adjacent to the pump and filter. Therefore, electricity will 
be readily available for the pool heater. The Department decided to 
keep gas-fired pool heaters as one class and to consider electricity-
using design options as another design option. Accordingly, the 
installation and maintenance expenses (in addition to increased 
manufacturer costs) associated with design options using electricity 
were considered in the economic calculations.
    Another product class issue dealt with heat pump pool heaters. Air 
Energy Heat Systems (Air Energy Heat Systems, No. 44 at 1) provided 
efficiency data. The company stated that coefficients of performance 
are available in the mid five's and will reach the low six's in the 
future.
    The Department has adopted American National Standards Institute 
Standards Z21.56-1989 and Z21.56a-1990 as the test procedure for pool 
heaters. The American National Standards Institute standards apply to 
gas-fired pool heaters only, not electric resistance pool heaters or 
electric heat pump pool heaters. Since a test procedure does not exist 
for electric pool heaters, coefficients of performance data were not 
used in the analysis.
    Design options. As for pool heater design options, the Gas 
Appliance Manufacturers Association argued that since pool heaters have 
``no flues,'' many of the design options listed in the Advanced Notice 
of Proposed Rulemaking are inappropriate, such as use of flue dampers, 
multiple flues, and increased flue baffling. (Gas Appliance 
Manufacturers Association, No. 40 at 5.)
    Most pool heaters currently being manufactured pass the water 
through a heat exchanger pipe which is located inside a combustion 
chamber above the burner. This design does not have a flue, and would 
not benefit from design options to improve the flue. The Department 
agrees with Gas Appliance Manufacturers Association and is not 
considering these design options.
    One company took issue with the Gas Appliance Manufacturers 
Association's comments about flue dampers not being an appropriate 
design for pool heaters. Flair said, ``We know of several manufacturers 
who build boiler-type pool heaters equipped with flues.'' (Flair, No. 
85 at 1.) Flair also recommended that the Department evaluate a water 
heater design option of automatic ignition with a flue damper for pool 
heaters. (Flair, No. 85 at 2.)
    The Department is not aware of any residential pool heaters being 
manufactured currently with separate boilers or tanks that store water 
at elevated temperatures. Flue dampers are effective only at reducing 
standby losses from storage tanks. Therefore, flue dampers were not 
considered. Automatic ignition was included as a design option.
    Other comments. One comment dealt with pool heater test procedure 
issues. The California Energy Commission stated new test procedures are 
needed for oil-fired, electric resistance, and heat pump pool heaters, 
and the gas-fired pool heater test needs to include standby losses so 
that intermittent ignition devices are credited for increasing the 
energy factor. (Commission Energy Commission, No. 24 at 5.)
    Modifications to the test procedures for pool heaters, which 
address these issues, are contained in the Notice of Proposed 
Rulemaking referenced above.
    Lastly, one comment proposed that pool heaters be brought under the 
appliance labeling program. (California Energy Commission, No. 24 at 
6).
    In response, the Department notes that the appliance labeling 
program is administered by the Federal Trade Commission. It will be the 
Federal Trade Commission's decision, not the Department's, whether to 
bring pool heaters under labeling requirements.
7. Clothes Washers
    In a final rule regarding standards for three types of appliances, 
including clothes washers, published in the Federal Register on May 14, 
1991 (56 FR 22250), the Department announced that it was accelerating 
the second review of energy efficiency standards for clothes washers. 
In response to that notice, a number of energy-efficiency advocates and 
appliance manufacturers requested that the Department delay the second 
review until 1995-96.\34\ The additional time was requested in order to 
allow manufacturers time to implement the standards imposed by the 1991 
final rule and to fully evaluate new, more energy-efficient 
technologies such as top-loading horizontal-axis clothes washers. This 
additional time, manufacturers contend, will enable them to provide 
more meaningful and relevant comments on the next, legislatively 
required rulemaking. The Department considered the request, and by 
letter, dated February 26, 1992, notified the parties requesting the 
delay that the Department had determined that it will conduct the 
rulemaking on the later schedule, as requested.\35\
---------------------------------------------------------------------------

    \34\ACEEE, AHAM, NRDC, No. 89 at 1.
    \35\J. Michael Davis, P.E., No. 90 at 1.
---------------------------------------------------------------------------

8. Fluorescent Lamp Ballasts
    Classes. Several fluorescent ballast class issues were raised in 
the comments on the Advanced Notice of Proposed Rulemaking. One comment 
supported the Department's proposed classes. (Advance Transformer, No. 
25 at 2). On the other hand, a number of comments recommended 
additional classes for fluorescent lamp ballasts based on the size and 
type of lamp for which the ballast is designed. One set of comments 
proposed adding three and four-lamp F40T12 ballasts and F32T8 ballasts 
as product classes. (American Council for an Energy Efficient Economy, 
No. 6 at 2; Public Citizen, No. 7 at 3; Natural Resources Defense 
Council, No. 13 at 26; Rocky Mountain Institute, No. 15 at 3; 
California Energy Commission, No. 24 at 6; Northwest Power Planning 
Council, No. 32 at 2; and Sierrra Club, No. 43 at 2). Several comments 
proposed adding ballasts for compact fluorescent lamps as a product 
class. (Natural Resources Defense Council, No. 13 at 26; Rocky Mountain 
Institute, No. 15 at 3; Northwest Power Planning Council, No. 32 at 2; 
and Sierra Club, No. 43 at 2). Lastly, three comments proposed that 
dimming features on ballasts warrant a separate class, since such 
ballasts provide the utility to vary light output. (American Council 
for an Energy Efficient Economy No. 6 at 5; California Energy 
Commission, No. 24 at 7; Northwest Power Planning Council, No. 32 at 
6).
    In response, the Department has added three and four-lamp F40T12 
ballasts and one, two, three, and four-lamp F32T8 ballasts to the list 
of product classes. These new classes will all have unique ballast 
efficiency factors. Compact fluorescent ballasts, however, are 
integrated with a lamp and sold as one package. As such, one cannot 
determine the efficiency of the ballast separate from the lamp. 
Although dimming ballasts do provide a unique utility to vary light 
output, the Department believes that such ballasts do not warrant a 
separate class. At full light output, their energy efficiency is 
expected to be equal to that of non-dimming ballasts. Therefore, any 
standard developed for non-dimming ballasts will apply to dimming 
ballasts operated at full light output.
    Design options. The comments on the fluorescent lamp ballast design 
options consisted largely of suggestions of additional designs for the 
Department to consider. Certified Ballast Manufacturers stated that it 
feels there are only two design options, electromagnetic and 
electronic. (Certified Ballast Manufacturers, No. 47 at 2). Four 
comments proposed improvement of magnetic ballasts through the use of 
lower resistance conductors and low-loss silicone or amorphous steel 
core material. (American Council for an Energy Efficient Economy, No. 6 
at 5; Valmont Electric, No. 16 at 1; California Energy Commission, No. 
24 at 7; and Northwest Power Planning Commission, No. 32 at 5). A 
number of comments suggested that design options which reduce energy 
use of magnetic ballasts through cathode (heater) cutout, including use 
of electronic controls (hybrid ballasts), be considered. (American 
Council for an Energy Efficient Economy, No. 6 at 5; Public Citizen, 
No. 7 at 3; Natural Resources Defense Council, No. 17 at 29; Valmont, 
No. 16 at 1; California Energy Commission, No. 24 at 7; and Northwest 
Power Planning Council, No. 32 at 5). The California Energy Commission 
stated that instant start should be considered as one of the design 
options for magnetic ballasts. (California Energy Commission, No. 24 at 
7). There were several comments regarding the consideration of levels 
of efficiency of electronic ballasts as design options such as instant 
start and use of integrated circuits. (American Council for an Energy 
Efficient Economy, No. 6 at 5; Public Citizen, No. 7 at 3; Sierra Club, 
No. 16 at 2; Natural Resources Defense Council, No. 17 at 29; Valmont, 
No. 16 at 1; California Energy Commission, No. 24 at 7; and Northwest 
Power Planning Council, No. 32 at 5). Finally, three comments proposed 
that dimming capability (task tuning) be considered as a design option 
of electronic ballasts. (American Council for an Energy Efficient 
Economy, No. 6 at 5; California Energy Commission, No. 24 at 7; and 
Northwest Power Planning Commission, No. 32 at 5).
    Dimming capability (task tuning) is addressed above in the product 
class discussion. The analysis treated cathode cutout and instant start 
for magnetic ballasts, as well as lower resistance conductors and low-
loss steel cores, as design options. The Department also analyzed one 
efficiency level for instant start and one for rapid-start electronic 
ballasts. The Department concluded that the use of integrated circuits 
as a substitute for discrete components is common enough to be included 
in the initial electronic ballast design option.
    Other comments. Two comments recommended that energy-efficient 
magnetic ballasts be used as the baseline for all product classes. 
(Valmont, No. 16 at 1; and Magnetek Universal, No. 35 at 1).
    The Department agrees with these recommendations and used energy-
efficient magnetic ballasts for the baseline units for all classes.
    Several comments advised against the Department's considering 
standards to reduce the harmonic distortion of fluorescent lamp 
ballasts. (Valmont, No. 16 at 3; Advance Transformer, No. 25 at 4; 
Magnetek, No. 35 at 2; and National Electrical Manufacturers 
Association, No. 41 at 1). These comments contended that the harmonic 
distortions caused by fluorescent lamp ballasts, presently less than 30 
percent, are not a serious problem, and that options designed to reduce 
such distortions would not be cost-effective. (Both magnetic and 
electronic ballasts generate harmonic distortion.)
    The Department treated the harmonic content for electronic ballasts 
as acceptable for conventional, i.e., non-compact, ballasts and did not 
assign any additional cost to achieving reduced harmonic distortion.
    With regard to the fluorescent ballast test procedure, Advance 
Transformer and the National Electrical Manufacturers Association 
stated that there is presently no test procedure for electronic 
ballasts. (Advance Transformer, No. 25 at 2; National Electrical 
Manufacturers Association, No. 41 at 2).
    The Department used the present test procedure for magnetic 
ballasts to measure the ballast efficacy factor of electronic ballasts. 
The Department notes that the 60 hertz input power measurement and the 
light output measurement are the same, regardless of the type of 
ballast (low or high frequency). The Department believes that the 
existing test procedure is adequate to measure the ballast efficacy 
factor of electronic ballasts.
    Three manufacturers provided energy savings estimates for various 
design options. Energy Advantage stated that 20 percent savings from 
electronic ballasts, compared to energy-efficient magnetic ballasts, 
are possible. In addition, this energy savings can be accomplished with 
up to a 50 percent increase in lifetime. (Energy Advantage, No. 27 at 
1). Magnetek said that losses for a two lamp F40 electronic ballast can 
be reduced from 5-6 watts to about 3.5-4.5 watts, for a savings of 
1.25-1.5 watts out of 56-58 watts, by substitution of an integrated 
circuit for discrete components. (Magnetek, No. 35 at 1). One other 
company, Valmont, provided energy savings tables for five ballast 
product classes, their maximum technologically feasible efficiencies, 
and the costs of achieving those efficiencies. (Valmont, No. 16 at 4-
7).
    The Department used some of the above data in combination with data 
from directories and other published data\36\ to determine energy 
savings for various classes of fluorescent ballasts. (See Technical 
Support Document, Volume B). The Department found that 10-15 percent 
energy savings from electronic ballasts, relative to energy-efficient 
magnetic ballasts, are possible. The Department developed data that 
indicated larger energy savings are possible with electronic ballasts 
than were estimated by Valmont. This resulted in higher maximum 
technologically feasible efficiencies for all ballast product classes 
than provided by Valmont. The Department used incremental manufacturer 
costs that were specific to the energy efficiency gains estimated for 
each ballast product class studied, and, therefore, did not use the 
cost data provided by Valmont. A more detailed discussion of 
assumptions and analysis used for this product class are provided in 
the Technical Support Document. As for lifetimes of ballasts, the 
Department assumed the lifetime for an electronic ballast to be equal 
to that of a magnetic ballast, since no experimental data were received 
or found to differentiate their lifetimes.
---------------------------------------------------------------------------

    \36\R. Verderber, O. Morse, and F. Rubinstein, ``Performance of 
Electronic Ballast and Controls with 34 and 40 Watt F40 Fluorescent 
Lamps,'' IEEE Transactions on Industry Applications, Vol. 25 No. 6, 
November 1989 and A. Loruss and K. Bowes, Harmonic and Power 
Characteristics of Electronic Ballasts for Fluorescent Applications, 
Northeast Utilities Service Company, Lab Test, June 1990; Directory 
of Certified Fluorescent Lamp Ballasts and Certified Luminaire 
Manufacturers, CEC, March 4, 1991.
---------------------------------------------------------------------------

    Three manufacturers suggested that some combination of education 
and controls would be superior to standards in saving lighting energy 
use. Advance Transformer contended that fluorescent ballasts do not 
belong in the proposed rulemaking, and that improved education about 
lighting will accomplish more than standards. (Advance Transformer, No. 
25 at 1). Magnetek and Certified Ballast Manufacturers both stated that 
controls, i.e., occupancy sensors, light feedback, daylighting, and 
automatic timers, can save more energy than can more stringent ballast 
standards. (Magnetek, No. 35 at 1; Certified Ballast Manufacturers, No. 
47 at 2).
    In response, the Department notes that the Act requires DOE to 
consider, in this rulemaking, more stringent fluorescent ballast 
standards and the concomitant energy savings therefrom. The Department 
considered such programs as alternatives to standards in the Regulatory 
Impact Analysis found in Section V of today's notice.
9. Television Sets
    Classes. The Natural Resources Defense Council, Rocky Mountain 
Institute, and Thomson commented on television set class delineations. 
The Natural Resources Defense Council stated that separate classes may 
be needed for stereo sound, remote control, and other features. 
(Natural Resources Defense Council, No 13 at 24). Also, the Rocky 
Mountain Institute stated that it might make sense to differentiate on 
the basis of features like remote control, electronic tuning, and 
stereo sound. (Rocky Mountain Institute, No. 15 at 2).
    Thomson stated that the large number of necessary variables or 
items used to classify television receivers, including, for example, 
feature content and screen size, would greatly complicate any attempt 
to categorize television receivers in order to establish meaningful 
energy usage guidelines. Thomson also said that many customer-preferred 
performance qualities, such as high picture brightness and high-quality 
stereo sound consume correspondingly higher levels of power than 
television sets that do not exhibit those qualities. There are other 
desirable, if not necessary, features, such as remote control and on-
screen function displays, and federally mandated features, such as 
closed caption decoding, that may increase energy use. (Thomson, No. 49 
at 3, 5).
    The Electronic Industries Association stated that in 1989, 83 
percent of color television sets sold to dealers reportedly included a 
remote control feature and that virtually all television sets use 
electronic tuning. (Electronic Industries Association, No. 30 at 3, 4).
    In response to these comments, the Department established one class 
for color television sets with electronic tuning and remote control. 
However, the Department believes that the energy used to illuminate the 
screen is strongly affected by screen size and, therefore, has proposed 
standards for television sets that are a function of screen size. 
Furthermore, DOE believes that there is no need to separate classes 
according to stereo sound because the sound is not on during the 
efficiency test and therefore sound energy does not affect test 
procedure measurements.
    The standard level analysis is based primarily on manufacturers' 
data for 19/20'' color television sets because recent manufacturer cost 
and energy use data for other screen sizes were very limited. The 
results of the analysis, based on the 19/20'' color television sets and 
the limited data available for other screen sizes ranging from 13.5'' 
to 33'', were then used to derive the proposed standards as a function 
of screen size.
    Additionally, the Department did not consider standards for black 
and white television sets since their share of the market is rapidly 
decreasing and over 50 percent of those sold are designed for battery 
or battery-AC operation and are thus designed to minimize energy use.
    Design options. Among the comments on television set design 
options, the Rocky Mountain Institute proposed that DOE consider all 
reasonable options for reducing standby power as well as operating 
power. One option would be to require a clearly labeled switch that 
would give consumers the choice of turning the set to standby or 
completely off. (Rocky Mountain Institute, No. 15 at 5).
    The American Council for an Energy Efficient Economy suggested that 
DOE analyze use of a step down transformer rather than a resistance 
circuit for electronic tuning and new transformer materials with low 
core loss (amorphous alloys). The American Council for an Energy 
Efficient Economy also urged DOE to look at television sets in other 
countries, particularly Germany. (American Council for an Energy 
Efficient Economy, No. 6 at 3-4). The Natural Resources Defense Council 
proposed that DOE consider power supply efficiency improvement. 
(Natural Resources Defense Council, No. 13 at 38).
    The Electronics Industry Association said that average remote 
control power is 4W, while some are as low as 2W; electronic tuning 
uses less than 1W, brightness sensor less than 1W. (Electronic 
Industries Association, No. 30 at 3-4). Thomson said that remote 
control uses 3-6W and that a brightness sensor consumes essentially no 
power in itself and offers no energy benefit not otherwise available to 
the consumer by using the customary picture control adjustments. 
(Thomson, No. 49 at 6, 7). The Electronic Industries Association 
provided data on voltage-regulating power supplies. It said that a 
change in the type of regulator from shunting to switching can save 
approximately six watts at an additional cost of $1.50. Other comments 
were provided for other design options, but no additional data were 
submitted. (Electronic Industries Association, No. 30 at 4).
    The Department considered all comments on design options by 
analyzing standby power; power supply efficiency improvements, 
including voltage-regulating power supplies; and step down transformers 
for electronic tuning. These design options are shown in the cost/
efficiency tables in the Technical Support Document. Data submitted by 
the Electronic Industries Association and previously submitted data 
from manufacturers were used to develop these tables. While a switch to 
allow consumers to turn off the remote control portion of the 
television (suggested by the Rocky Mountain Institute) would likely 
save some energy, the amount would be determined by consumer behavior 
and is not predictable. The Department discovered no data on improved 
transformer materials with low core loss nor any data on the energy 
use, as measured according to DOE test procedure, for the German 
models. The Department did develop data on Japanese models measured 
according to its test procedure. These data were included in the 
analysis.
    Other comments. Several comments questioned the feasibility of 
establishing energy conservation standards for television sets. The 
Electronic Industries Association said that television set efficiency 
has improved over the years because manufacturers have been steadily 
limiting power to reduce internal heat. (Electronic Industries 
Association, No. 30 at 2). Thomson said there is little, if any, 
opportunity for further reductions in energy use. Thomson also said the 
major factors that influence energy use are controlled by the consumer: 
Operating hours, brightness, sound level, and control settings. 
(Thomson, No. 49 at 2-6). The Electronic Industries Association argued 
that efficiency standards would impede the development of high 
definition television. (Electronic Industries Association, No. 30 at 
6). G&A Consultancy suggested that DOE ``not place retarding 
restrictions upon television sets because precluding the television 
set's potential role as an energy control may inadvertently deny the 
American homeowner a far more valuable system of energy savings.'' (G&A 
Consultancy, No. 50 at 4).
    The Department considered all these comments in the decision-making 
process for television set standards. With regard to such standards 
precluding the potential for a television set to become a home energy 
controller, it is the Department's belief that if television sets were 
transformed to home energy controllers, the nature of the appliance 
might have changed sufficiently for it to be considered a new 
appliance. If so, it would not be a covered product and subject to an 
energy conservation standard for television sets.
    Two comments stated that standards are inappropriate for television 
sets, stating that they already are energy efficient, leaving little 
room for improvement. (Electronic Industries Association, No. 30 at 7; 
Thomson, No. 49 at 2).
    The Department analyzed television set standard levels by the 
methodology proposed in the advance notice, thereby taking into account 
the costs and benefits of any potential efficiency improvements. The 
Department found that the efficiency of the typical television set can 
be improved.

IV. Product-Specific Discussion

a. Room Air Conditioners

1. Efficiency Levels Analyzed
    The Department examined a range of standard levels for room air 
conditioners. Table 4-1 presents the seven efficiency levels selected 
for analysis for the twelve classes of room air conditioners. Level 7 
corresponds to the highest efficiency level, max tech, considered in 
the engineering analysis.

                          Table 4.1--Standard Levels Analyzed for Room Air Conditioners                         
----------------------------------------------------------------------------------------------------------------
     Product class        Baseline    Level 1    Level 2    Level 3    Level 4    Level 5    Level 6    Level 7 
----------------------------------------------------------------------------------------------------------------
With louvered sides less                                                                                        
 than 6,000 Btu.........       8.27       9.36       9.36      10.44      10.62      11.08      11.52      13.04
With louvered sides                                                                                             
 6,000 to 7,999 Btu.....       8.45       9.32       9.32       9.79       9.79      10.25      10.74      12.14
With louvered sides                                                                                             
 8,000 to 13,999 Btu....       9.33       9.33      10.05      10.34      10.34      11.02      11.97      13.50
With louvered sides                                                                                             
 14,000 to 19,999 Btu...       9.00       9.00      10.09      10.09      10.37      11.13      11.13      13.58
With louvered sides                                                                                             
 20,000 and more Btu....       8.32       8.32       8.32       8.32       9.08       9.63      10.70      11.43
Without louvered sides                                                                                          
 less than 6,000 Btu....       7.96       9.01       9.01      10.06      10.24      10.67      11.10      12.56
With louvered sides                                                                                             
 6,000 to 7,999 Btu.....       8.15       8.15       9.22       9.43       9.43       9.98      10.35      11.69
Without louvered sides                                                                                          
 8,000 to 13,999 Btu....       9.00       9.00       9.69       9.96       9.96      10.65      11.54      13.01
Without louvered sides                                                                                          
 14,000 to 19,999 Btu...       8.64       8.64       9.75       9.75      10.01      10.81      10.81      13.10
Without louvered sides                                                                                          
 20,000 and more Btu....       8.03       8.03       8.03       8.03       8.77       9.30      10.34      11.02
With reverse cycle and                                                                                          
 with louvered sides....       8.71       8.71       9.83       9.83      10.10      10.75      12.11      13.22
With reverse cycle and                                                                                          
 without louvered sides.       8.78       8.78       9.42       9.71       9.71      10.39      11.24      12.66
----------------------------------------------------------------------------------------------------------------

    Rather than presenting the results for all classes of room air 
conditioners in today's notice, the Department selected a class of room 
air conditioners as being representative, or typical, of the product, 
and is presenting the results only for that class. The results for the 
other classes can be found in the Technical Support Document in the 
same sections as those referenced for the representative class. The 
representative class for room air conditioners is room air conditioners 
with side louvers, less than 6,000 BTU's per hour, which is one of the 
most prevalent classes of room air conditioners. For this 
representative class, trial standard levels 1 and 2 accomplish the 
above efficiency improvements from the baseline by enhanced evaporator 
and condenser fins and the use of a permanent split-capacitor fan 
motor; level 3 adds a subcooler and grooved tubes to both the 
evaporator and condenser coils; level 4 increases the compressor energy 
efficiency ratio to 11.0; level 5 increases the compressor energy 
efficiency ratio further to 11.5; level 6 increases the evaporator and 
condenser coil area; and level 7 adds a variable-speed compressor and 
brushless DC fan motor. Similar design options are used to achieve the 
above efficiencies for the other classes and are found tabulated in 
Section 1.4 of the Technical Support Document.
2. Payback Period
    Table 4-2 presents the payback periods for the efficiency levels 
analyzed for the representative class of the product. For this 
representative class, standard levels 1 through 4 satisfy the 
rebuttable presumption test, i.e., the additional price of purchasing a 
product will be less than three times the value of the energy savings 
that the consumer will receive during the first year. Payback for all 
classes of room air conditioners may be found in Tables 4.13 to 4.24 of 
the Technical Support Document. 

 Table 4-2.--Payback Periods of Design Options for Representative Class 
                        of Room Air Conditioners                        
                               [In years]                               
------------------------------------------------------------------------
                                                                Payback 
                       Standard level                           period  
------------------------------------------------------------------------
1............................................................       1.01
2............................................................       1.01
3............................................................       1.71
4............................................................       1.82
5............................................................       3.50
6............................................................       5.30
7............................................................     16.07 
------------------------------------------------------------------------

3. Significance of Energy Savings
    To estimate the energy savings by the year 2030 due to revised 
standards, the energy consumption of new room air conditioners under 
the base case is compared to the energy consumption of those sold under 
the candidate standard levels. For the candidate energy conservation 
standards, the Lawrence Berkeley Laboratory-Residential Energy Model 
projects that over the period 1996-2030, the following energy savings 
would result for all classes of the product:

Level 1--0.28 Quad
Level 2--0.62 Quad
Level 3--1.24 Quads
Level 4--1.42 Quads
Level 5--2.22 Quads
Level 6--3.06 Quads
Level 7--5.22 Quads

    The Department finds that each of the increased standards levels 
considered above would result in a significant conservation of energy.
4. Economic Justification
    A. Economic impact on manufacturers and consumers. The per unit 
increased cost to manufacturers to meet the efficiency of levels 1 and 
2 for the representative class is $3.81; to meet levels 3-7, the 
manufacturers' cost increases are $10.10, $11.75, $23.42, $50.24, and 
$210.24, respectively. See Technical Support Document, Table 1.6.
    At those levels of efficiency, the consumer price increases are 
$4.77 for levels 1 and 2 and $13.64, $15.43, $32.55, $54.61, and 
$220.04 for standard levels 3-7, respectively. See Technical Support 
Document, Table 4.1.
    The per-unit reduction in annual cost of operation (energy expense) 
at levels 1 and 2 is $5.12 for the representative class; standard level 
3 would reduce energy expenses by $9.13; standard level 4 by $9.73; 
standard level 5 by $11.16; standard level 6 by $12.41; and standard 
level 7 by $16.10. See Technical Support Document, Table 4.1.
    The Lawrence Berkeley Laboratory-Manufacturer Impact Model results 
for all classes of room air conditioners show that revised standards 
would cause a prototypical manufacturer to have some reductions in 
short-run return on equity from the 8.6 percent return in the base 
case. Standard levels 1 through 7 are projected to produce short-run 
return on equity's of 8.5 percent, 8.5 percent, 8.4 percent, 8.4 
percent, 8.4 percent, 5.2 percent and minus 4.3 percent, respectively. 
However, revised standards have little or no effect on the prototypical 
manufacturer's long-run return on equity. Standard levels 1 through 7 
are projected to produce long-run return on equity's of 8.5 percent, 
8.5 percent, 8.5 percent, 8.5 percent, 8.6 percent, 7.9 percent and 7.1 
percent, respectively. See Technical Support Document, Tables 5.1 and 
5.2.
    Most financial data of the type needed to characterize the 
prototypical manufacturer are generally not available because most real 
firms are subsidiaries or divisions of larger parent companies. Hence, 
DOE assumes that the prototypical firm has largely the same financial 
characteristics (e.g. debt-equity ratio, interest rate on debt, etc.) 
as parent firms. Financial data for the parent firms are based on 
publicly available sources such as Securities and Exchange Commission 
10K reports and company annual reports.
    B. Life-cycle cost and net present value. A life-cycle cost is 
calculated for a unit meeting each of the candidate standard levels. 
For the representative class, life-cycle costs at all standard levels 
other than level 7, the max tech level, are less than the baseline 
unit. Of the seven candidate standard levels, a unit meeting level 4 
has the lowest consumer life-cycle cost. See Technical Support 
Document, Figure 4.1.
    However, other than at the max tech level, consumers do not 
purchase units of the same efficiency. At each candidate standard 
level, the Department determines the average change in life-cycle costs 
by considering only those consumers who are being forced by the 
standard to move from a lower efficiency unit to one which just meets 
the standard level being considered. This is done by assuming in the 
base case a distribution of purchases of units meeting the efficiencies 
of the various standard levels. The base case distribution is based on 
the distribution of current sales as a function of efficiency. As each 
standard level is examined, the change in life-cycle cost reported is 
the average change only for affected consumers. Under this scenario, 
standard levels 1 and 2 would cause reductions in life-cycle costs for 
the average affected consumer of $38.86 for the representative class of 
room air conditioner; standard level 3 would reduce average life-cycle 
costs by $54.75; standard level 4, by $56.68; standard level 5, by 
$53.47; and standard level 6, by $43.47. These life-cycle cost 
reductions indicate that no standard level, other than max tech, would 
cause any economic burden on the average consumer. At standard level 7, 
the life-cycle costs are projected to increase $86.09, compared to the 
base case. See Technical Support Document, Table 4.13.
    The Department examined the effect of different discount rates (4, 
6, and 10 percent) on the life-cycle cost curves and generally found 
little impact. The Department did not consider higher discount rates, 
since such rates would be beyond the range of real, after-tax rates 
that consumers would likely face in financing the purchase of room air 
conditioners. Similarly, DOE did not consider different energy prices, 
including regional prices, in the life-cycle cost analysis. Since any 
standard is to be a national standard, DOE believed that national 
average energy prices were appropriate.
    The Net Present Value analysis, a measure of the net savings to 
society, indicates that for all classes of room air conditioners, 
standard level 1 would produce an NPV of $0.44 billion to consumers. 
The corresponding net present values for standard levels 2-6 are $0.82 
billion, $1.59 billion, $1.68 billion, $1.85 billion and $1.32 billion, 
respectively. The net present value for standard level 7 is minus $4.70 
billion. See Technical Support Document, Table 3.6.
    C. Energy savings. As indicated above, standards will result in 
significant savings of electricity consumption by room air 
conditioners.
    D. Lessening of utility or performance of products. As indicated 
above, DOE established classes of products in order to assure that the 
standards analyzed would not lessen the existing utility or performance 
of room air conditioners.
    E. Impact of lessening of competition. The determination of this 
factor must be made by the Attorney General.
    F. Need of the nation to save energy. Room air conditioners use 
electricity directly. In 1987, 4.3 percent of residential sector source 
electricity (or 0.45 quads) was accounted for on a national basis by 
room air conditioners.
    In addition, decreasing future electricity demand as a result of 
standards will decrease air pollution. See Technical Support Document, 
Appendix D of Volume A.\37\ Decreases in air pollution will occur for 
sulfur oxides (listed in equivalent weight of sulfur dioxide, or 
SO2). For all classes of room air conditioners at standard level 
1, over the years 1996 to 2030, the total estimated SO2 reduction 
would be 52,000 tons. During this time period, the peak annual 
reduction of SO2 emissions that are expected to be emitted by 
powerplants in the United States is 0.03 percent. For standard levels 
2-7, the reductions are 116,000 tons; 229,000 tons; 261,000 tons; 
394,000 tons; 520,000 tons; and 777,000 tons, respectively. The highest 
peak annual reduction of these levels is 0.35 percent.
---------------------------------------------------------------------------

    \37\The expected environmental impacts of the candidate standard 
levels were calculated prior to passage of the Clean Air Act 
Amendments of 1990 (CAAA, Pub. L. 101-549, November 15, 1990). As 
explained below, the CAAA will lower emissions of SO2 and 
NO2. Since appliance standards reduce the need for generation 
of electricity, they will cause lower emissions by powerplants of 
SO2 and NO2, thereby helping those utilities meet their 
required pollution reductions.
    For SO2, any emission reductions caused by appliance 
standards prior to the year 2000 will be part of much greater 
SO2 reductions that are required by the CAAA. After the year 
2000, SO2 reductions achieved through appliance standards or 
any other means by those emitting SO2 can be earned as credits. 
These are credits to emit an amount of SO2 equivalent to the 
amount of the SO2 reduction that created the credits. The new 
amendments allow those earning the credits either to sell them to 
others or to ``bank'' them for future use.
    Therefore, after the year 2000, to the extent that appliance 
standards result in SO2 credits being earned, and to the extent 
that such standards--induced credits are sold and used by others, 
the national SO2 reductions from standards will not occur.
    The new law also requires that utility boilers emit lower levels 
of NOx and requires that additional actions to reduce emissions 
be taken in regions not now in compliance with Federal ambient air 
quality standards for NOx or derivative pollutants, such as 
ground-level ozone. Because of these new requirements, the actual 
reductions in NOx emissions likely to result from the appliance 
standards are very likely to be substantially less than the 
estimates made prior to the enactment of the Clean Air Amendments of 
1990 and contained in this document.
    With respect to CO2, there are as yet no such regulatory 
constraints on national or regional emissions. However, efforts to 
comply with international commitments to stabilize CO2 
emissions, such as voluntary commitments by utilities and industries 
to reduce greenhouse gas emissions to 1990 levels by 2000, may 
result in constraints that are similar in nature to those for 
SO2 and NO2. If so, the reductions in CO2 emissions 
estimated to result from the standards also may not be fully 
realized.
---------------------------------------------------------------------------

    Standards will also result in a decrease in nitrogen dioxide 
(NO2) emissions. For standard level 1, over the years 1996 to 
2030, the total estimated NO2 reduction would be 47,000 tons. 
During this time period, the peak annual reduction of NO2 
emissions that are expected to be emitted by power plants in the United 
States is 0.03 percent. For standard levels 2-7, the reductions are 
103,000 tons; 205,000 tons; 234,000 tons; 353,000 tons; 467,000 tons; 
and 698,000 tons, respectively. The highest peak annual reduction of 
these levels is 0.35 percent.
    Another consequence of the standards will be the reduction of 
carbon dioxide (CO2) emissions. For standard level 1, over the 
years 1996 to 2030, the total estimated CO2 reduction would be 24 
million tons. During this time period, the peak annual reduction of 
CO2 emissions that are expected to be emitted by power plants in 
the United States is 0.03 percent. For standard levels 2-7, the 
reductions are 53 million tons; 105 million tons; 119 million tons; 181 
million tons; 240 million tons; and 360 million tons, respectively. The 
highest peak annual reduction of these levels is 0.35 percent.
    Decreasing future electricity demand is also likely to result in 
reductions in the demand for oil used in electricity generation. 
Because virtually all sources of oil, on the margin, are foreign, any 
reductions in oil demand are likely to be reflected in reductions in 
oil imports. For standard level 1, the estimated decrease in oil 
imports is 4.91 million barrels over the years 1996 to 2030. For 
standard levels 2-7, the reductions in oil imports are estimated to be 
10.76, 21.5, 24.45, 37.14, 49.21 and 73.69 million barrels, 
respectively.
5. Conclusion
    Section 325(l)(2)(A) of the Act specifies that the Department must 
consider, for amended standards, those standards that ``achieve the 
maximum improvement in energy efficiency which the Secretary determines 
is technologically feasible and economically justified.'' Accordingly, 
the Department first considered the max tech level of efficiency, i.e., 
standard level 7 for amended room air conditioner standards.
    Of the standard levels analyzed, level 7 would save the most energy 
(5.22 quads between 1996 and 2030). In order to meet this standard, the 
Department assumes that all room air conditioners would incorporate 
improved and increased heat transfer devices and high efficiency and 
variable-speed fan motors and compressors. However, the payback at this 
standard level of 16.1 years for the representative class, and up to 
23.9 years for other classes, exceeds the 15-year life of the product 
and causes life-cycle cost increases of $86 for the representative 
class, and up to $178 for other classes. This level also drives the 
short-run manufacturer return on equity from 8.6 percent to negative 
4.3 percent.
    The Department therefore concludes that the burdens of standard 
level 7 for room air conditioners outweigh the benefits, and rejects 
the standard level.
    The next most stringent standard level is standard level 6. This 
standard level is projected to save 3.06 quads of energy. This level 
produces life-cycle cost savings compared to the base case of $43, with 
a payback of 5.3 years, which is slightly more than one third of the 
average product lifetime. However, this level causes payback as high as 
9.1 years for other classes (over 60 percent of product life) and 
reduces manufacturer short-run return on equity from 8.6 percent to 5.2 
percent, a reduction of almost 40 percent. Also, at this standard 
level, some classes are assumed to incorporate variable-speed 
compressors, for which there is not a DOE test procedure. The 
Department believes that the development of such a test procedure would 
be a lengthy process which would probably delay the effective date of 
the standard for room air conditioners.
    The Department therefore, concludes that the burdens of standard 
level 6 for room air conditioners outweigh the benefits, and rejects 
the standard level.
    After carefully considering the analysis, the Department is 
amending the National Appliance Energy Conservation Act-imposed 1990 
standard for room air conditioners with standard level 5 for room air 
conditioners. The Department concludes that standard level 5 for room 
air conditioners saves a significant amount of energy and is 
technologically feasible and economically justified.
    There would be significant energy savings at this level of 
efficiency. During the period 1996-2030, these savings are calculated 
to be 2.22 quads of primary energy. In addition, the standard could 
have a positive effect on the environment by reducing the emissions of 
NO2 and SO2 by 353,000 tons and 394,000 tons, respectively, 
or by as much as 0.18 percent each by the year 2030. Furthermore, the 
standard will reduce emissions of CO2 by 181 million tons, or as 
much as 0.18 percent, over the forecast period.
    The technologies that are necessary to meet this standard are 
presently available. The Department finds the level to be economically 
justified. The consumer payback of this standard level is 3.5 years for 
the representative class and no more than 7.0 years for any class. This 
standard is at or near the lowest life-cycle cost for all classes and 
is expected to result in a reduction in life-cycle cost of 
approximately $53 for the representative class. Additionally, the 
standard is expected to have essentially no impact on the prototypical 
manufacturer's return on equity of 8.6 percent. Since this standard 
does not involve substantial redesign or retooling, the Department 
expects that it will not have negative impacts on smaller competitors.

b. Water Heaters

1. Efficiency Levels Analyzed.
    The Department examined a range of standard levels for water 
heaters. Table 4-3 presents the efficiency levels selected for analysis 
for the four classes of water heaters. Electric and gas storage water 
heaters each have five efficiency levels that were analyzed, but were 
paired together to yield the eight combinations shown below. Level 8 
corresponds to the highest efficiency level, max tech, considered in 
the engineering analysis for each class.

                                                Table 4-3.--Efficiency Levels Analyzed for Water Heaters                                                
                                                                     [Energy factor]                                                                    
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                Standard level                                          
                    Product class                     --------------------------------------------------------------------------------------------------
                                                       Baseline       1          2          3          4          5          6          7          8    
--------------------------------------------------------------------------------------------------------------------------------------------------------
Electric.............................................       0.86       0.90       0.93       1.77       1.89       1.89       2.54       2.54       2.54
Gas..................................................       0.54       0.54       0.55       0.57       0.57       0.58       0.58       0.60       0.82
Instan...............................................       0.62       0.62       0.62       0.62       0.75       0.75       0.75       0.78       0.90
Oil..................................................       0.53       0.58       0.60       0.67       0.67       0.69       0.69       0.69       0.78
--------------------------------------------------------------------------------------------------------------------------------------------------------

    Rather than presenting the results for all classes of water heaters 
in today's notice, the Department selected two classes of water heaters 
as being representative, or typical, of the product, and is presenting 
the results only for those classes. The results for the other classes 
can be found in the Technical Support Document in the same sections as 
those referenced for the representative classes. The representative 
classes for water heaters are electric storage water heaters and gas 
storage water heaters, which are the most prevalent classes of water 
heaters. For electric storage water heaters, trial standard level 1 
accomplishes the above efficiency improvement from the baseline by the 
use of heat traps and by reducing heat leaks; level 2 increases the 
insulation level to R-25; at level 3 the insulation is reduced back to 
the baseline level of R-16, but an add-on heat pump is added; levels 4 
and 5 increase the insulation back to R-25; and levels 6, 7 and 8 
assume the use of an integral heat pump. For gas storage water heaters, 
trial standard level 1 is the same as the baseline, trial standard 
level 2 accomplishes the above efficiency improvement by the use of 
heat traps and by reducing heat leaks, levels 3 and 4 increase the 
insulation level to R-16, levels 5 and 6 increase the insulation level 
to R-25, at level 7 the insulation level is reduced back to R-16 but 
electronic ignition is added, and at level 8 the flue gases are assumed 
to condense. Similar design options are used to achieve the above 
efficiencies for the other classes and are found tabulated in Sections 
1.5 and 1.6 of the Technical Support Document.
2. Payback Period
    Table 4-4 presents the payback period for the efficiency levels 
analyzed for gas and electric storage water heaters. For gas water 
heaters, standard level 2 satisfies the rebuttable presumption test, 
i.e., the additional price of purchasing a product will be less than 
three times the value of the energy savings that the consumer will 
receive during the first year; for electric water heaters standard 
levels 1 through 5 satisfy the rebuttable presumption test. 

     Table 4-4.--Payback Periods of Design Options for Water Heaters    
                               [In years]                               
------------------------------------------------------------------------
                                                       Payback period   
                  Standard level                   ---------------------
                                                       Gas      Electric
------------------------------------------------------------------------
1.................................................        N/A        0.5
2.................................................        2.6        2.3
3.................................................        3.5        1.9
4.................................................        3.5        2.0
5.................................................       10.1        2.0
6.................................................       10.1        3.5
7.................................................       11.2        3.5
8.................................................       18.9        3.5
------------------------------------------------------------------------

3. Significance of Energy Savings
    To estimate the energy savings by the year 2030 due to revised 
standards, the energy consumption of new water heaters under the base 
case is compared to the energy consumption of those sold under the 
candidate standard levels. For the candidate energy conservation 
standards, the Lawrence Berkeley Laboratory-Residential Energy Model 
projects that over the period 1996-2030, the following energy savings 
would result for all classes of the product:

Level 1--0.09 Quad
Level 2--0.73 Quad
Level 3--32.10 Quads
Level 4--34.89 Quads
Level 5--34.99 Quads
Level 6--44.39 Quads
Level 7--45.85 Quads
Level 8--54.45 Quads

    The Department finds that each of the increased standards Levels 
considered above would result in a significant conservation of energy.
4. Economic Justification
    A. Economic impact on manufacturers and consumers. The per unit 
increased cost to manufacturers to meet the level 1 efficiency for gas 
water heaters is zero since it is the same as the baseline; to meet 
level 2 the manufacturers' cost increase is $5.47, levels 3 and 4 are 
$18.19, levels 5 and 6 are $28.57, level 7 is $72.14, and level 8 is 
$358.23. The per-unit increased cost to manufacturers to meet the level 
1 efficiency for electric water heaters is $5.32; to meet level 2 the 
manufacturers' cost increase is $14.33, level 3 is $201.82, levels 4 
and 5 are $210.83, and levels 6 through 8 are $585.06. See Technical 
Support Document, Table 1.5, ``Cost Data for Gas-Fired Storage Water 
Heaters'' and Table 1.9, ``Cost Data for Electric Storage Water 
Heaters.''
    At those levels of efficiency, the consumer price increases for gas 
water heaters are zero for level 1, since it is the same as the 
baseline, $7.35 for level 2, $24.05 for levels 3 and 4, $59.60 for 
levels 5 and 6, $108.55 for level 7 and $901.80 for level 8. For 
electric water heaters the consumer price increases are $6.85 for level 
1, $42.04 for level 2, $361.36 for level 3, $394.38 for levels 4 and 5, 
and $834.31 for levels 6 through 8. See Technical Support Document, 
Tables 4.1 and 4.2.
    The per-unit reduction in annual cost of operation (energy expense) 
at level 1 is zero for a gas water heater because it is the same as the 
baseline; standard level 2 would reduce energy expenses by $2.87; 
standard levels 3 and 4 by $7.46; standard levels 5 and 6 by $9.20; 
standard level 7 by $13.32; and standard level 8 by $53.02. For 
electric water heaters standard level 1 would reduce energy expenses by 
$14.66, standard level 2 by $26.78, standard level 3 by $195.01, levels 
4 and 5 by $207.13 and levels 6 through 8 by $250.79. See Technical 
Support Document, Tables 4.1 and 4.2.
    The Lawrence Berkeley Laboratory-Manufacturers Impact Model results 
for all classes of water heaters show that any of the revised standards 
would cause a prototypical manufacturer to have negative short-run 
return on equity. This is caused in part by the very low base case 
return of 0.4 percent, indicative of an industry which is extremely 
price-competitive. The negative short-run return on equity's are 
especially severe at the three most stringent levels. Standard levels 1 
through 8 are projected to produce negative short- run return on 
equity's of 0.2 percent, 0.3 percent, 3.3 percent, 3.5 percent, 3.7 
percent, 17.1 percent, 18.1 percent and 31.7 percent respectively. 
However, revised standards will slightly increase the prototypical 
manufacturer's long-run return on equity at standard levels above level 
2. Standard levels 1 through 8 are projected to produce long-run return 
on equity's of 0.4 percent, 0.4 percent, 0.8 percent, 0.8 percent, 0.8 
percent, 1.6 percent, 1.7 percent and 1.9 percent, respectively. See 
Technical Support Document, Tables 5.1 and 5.2.
    Furthermore, most financial data of the type needed to characterize 
the prototypical manufacturer are generally not available because most 
real firms are subsidiaries or divisions of larger parent companies. 
Hence, DOE assumes that the prototypical firm has largely the same 
financial characteristics (e.g. debt-equity ratio, interest rate on 
debt, etc.) as parent firms. Financial data for the parent firms are 
based on publicly available sources such as Securities and Exchange 
Commission 10K reports and company annual reports. Also, DOE based its 
assumptions for the prototypical firm strictly on information regarding 
water heater manufacturers. The Department seeks comments on how to 
better characterize a prototypical firm when heat pump water heaters 
are included in the mix of products. For example, it may be that room 
air conditioner manufacturers become the system manufacturer, with the 
water heater tank becoming a purchased part. In that case, at those 
levels where heat pumps are assumed, it may be reasonable to introduce 
some of the financial characteristics of the room air conditioner 
industry since the heat pumps in question are very similar to room air 
conditioners.
    B. Life-cycle cost and net present value. A life-cycle cost is 
calculated for a unit meeting each of the candidate standard levels. 
For the representative classes, life-cycle costs at all standard levels 
other than level 8, the max tech level, for gas water heaters are less 
than the baseline unit. Of the eight candidate standard levels, units 
meeting levels 4 and 5 have the lowest consumer life-cycle costs for 
electric water heaters and units meeting levels 3 and 4 have the lowest 
consumer life-cycle costs for gas water heaters. See Technical Support 
Document, Figures 4.2 and 4.1.
    However, other than at the max tech level, consumers do not 
purchase units of the same efficiency. At each candidate standard 
level, the Department determines the average change in life-cycle costs 
by considering only those consumers who are being forced by the 
standard to move from a lower efficiency unit to one which just meets 
the standard level being considered. This is done by assuming in the 
base case a distribution of purchases of units meeting the efficiencies 
of the various standard levels. The base case distribution is based on 
the distribution of current sales as a function of efficiency. As each 
standard level is examined, the change in life-cycle cost reported is 
the average change only for affected consumers. Under this scenario, 
standard level 1 would cause reductions in life-cycle costs for the 
average consumer of $70.39 for the representative class of electric 
water heaters with no impact on gas water heaters, which remain at the 
base case at this level; standard level 2 would reduce average life-
cycle costs by $81.04 and $19.13 for electric and gas water heaters, 
respectively; standard level 3, by $974.88 and $29.81; standard level 
4, by $1024.20 and $29.81; standard level 5, by $1024.20 and minus 
$3.77; standard level 6, by $907.99 and minus $3.77; standard level 7, 
by $907.99 and minus $13.12; and standard level 8, by $907.99 and minus 
$437.41. These life-cycle cost reductions indicate that no standard 
level, other than levels 5 through 8 for gas water heaters, would cause 
any economic burden on the average consumer. See Technical Support 
Document, Tables 4.5 and 4.6.
    The Department examined the effect of different discount rates (4, 
6, and 10 percent) on the life-cycle cost curves and generally found 
little impact. The Department did not consider higher discount rates, 
since such rates would be beyond the range of real, after-tax rates 
that consumers would likely face in financing the purchase of water 
heaters. Similarly, DOE did not consider different energy prices, 
including regional prices, in the life-cycle cost analysis. Since any 
standard is to be a national standard, DOE believed that national 
average energy prices were appropriate.
    The net present value analysis, a measure of the net savings to 
society, indicates that for all classes of water heaters, standard 
level 1 would produce a net present value of $0.19 billion to 
consumers. The corresponding net present values for levels 2-8 are 
$0.99 billion, $40.17 billion, $42.92 billion, $42.68 billion, $38.15 
billion, $39.91 billion and $32.50 billion, respectively. See Technical 
Support Document, Table 3.6.
    C. Energy savings. As indicated above, standards will result in 
significant savings of energy consumption for water heaters.
    D. Lessening of utility or performance of products. As indicated 
above, DOE established classes of products in order to assure that the 
standards analyzed would not lessen the existing utility or performance 
of water heaters.
    E. Impact of lessening of competition. The determination of this 
factor must be made by the Attorney General.
    F. Need of the nation to save energy. Water heaters use 
electricity, gas, and oil directly. In 1987, 18.4 percent of 
residential sector source electricity (or 1.94 quads) and 30.7 percent 
of residential sector natural gas consumption (or 1.59 quads) were 
accounted for on a national basis by water heaters.
    In addition, decreasing future energy demand as a result of 
standards will decrease air pollution. See Technical Support Document, 
Appendix D of Volume A \38\. Decreases in air pollution will occur for 
sulfur oxides (listed in equivalent weight of sulfur dioxide, or 
SO2). For all classes of water heaters at standard level 1, over 
the years 1996 to 2030, the total estimated SO2 reduction would be 
17,000 tons. During this time period, the peak annual reduction of 
SO2 emissions that are expected to be emitted by power plants in 
the United States is 0.01 percent. For standard levels 2-8, the 
reductions are 145,000 tons; 5,381,000 tons; 5,885,000 tons; 5,890,000 
tons; 7,796,000 tons; 7,823,000 tons; and 7,124,000 tons, respectively. 
The highest peak annual reduction of these levels is 3.58 percent.
---------------------------------------------------------------------------

    \38\See, footnote 37.
---------------------------------------------------------------------------

    Standards will also result in a decrease in nitrogen dioxide 
(NO2) emissions. For standard level 1, over the years 1996 to 
2030, the total estimated NO2 reduction would be 14,000 tons. 
During this time period, the peak annual reduction of NO2 
emissions that are expected to be emitted by power plants in the United 
States is 0.01 percent. For standard levels 2-8 the reductions are 
118,000 tons; 4,890,000 tons; 5,338,000 tons; 5,336,000 tons; 6,995,000 
tons; 7,086,000 tons; and 7,109,000 tons, respectively. The highest 
peak annual reduction of these levels is 3.57 percent.
    Another consequence of the standards will be the reduction of 
carbon dioxide (CO2) emissions. For standard level 1, over the 
years 1996 to 2030, the total estimated CO2 reduction would be 7 
million tons. During this time period, the peak annual reduction of 
CO2 emissions that are expected to be emitted by power plants in 
the United States is 0.02 percent. For standard levels 2-8 the 
reductions are 59 million tons; 2,607 million tons; 2,837 million tons; 
2,845 million tons; 3,662 million tons; 3,747 million tons; and 4,113 
million tons, respectively. The highest peak annual reduction of these 
levels is 4.14 percent.
    Decreasing future electricity demand is also likely to result in 
reductions in the demand for oil used in electricity generation. 
Because virtually all sources of oil, on the margin, are foreign, any 
reductions in oil demand are likely to be reflected in reductions in 
oil imports. For standard level 1, the estimated decrease in oil 
imports is 1.6 million over the years 1996 to 2030. For standard levels 
2-8, the reductions in oil imports are estimated to be 24.12, 605.97, 
654.55, 677.03, 835.53, 842.83 and 786.97 million barrels, 
respectively.
    5. Conclusion. Section 325(l)(2)(A) of the Act specifies that the 
Department must consider, for amended standards, those standards that 
``achieve the maximum improvement in energy efficiency which the 
Secretary determines is technologically feasible and economically 
justified.'' Accordingly, the Department first considered the max tech 
level of efficiency, i.e., standard level 8 for amended water heater 
standards.
    Of the standard levels analyzed, level 8 will save the most energy 
(54.45 quads between 1996 and 2030). In order to meet this standard, 
the Department assumes that all electric water heaters will incorporate 
improved thermal characteristics and an integral heat pump, and all gas 
water heaters will incorporate improved thermal characteristics and 
condense the flue gases. However, the payback at this standard level of 
18.9 years for gas water heaters exceeds the 14-year life of the 
product and causes life-cycle cost increases of $437 for gas water 
heaters, and up to $1,108 for other classes. This level also quadruples 
the first cost of electric and gas water heaters and drives the short-
run manufacturer return on equity from 0.4 percent to negative 32.1 
percent.
    The Department therefore concludes that the burdens of standard 
level 8 for water heaters outweigh the benefits, and rejects the 
standard level.
    The next two most stringent standard levels, 7 and 6, are projected 
to save 45.85 and 44.39 quads of energy, respectively. However, these 
levels also produce life-cycle cost increases for gas water heaters 
compared to the base case with payback of 11.2 and 10.1 years, which 
are more than two thirds of the average product lifetime. The first 
cost of electric water heaters at these levels is quadrupled from the 
base case and manufacturer short-run return on equity is reduced from 
0.4 percent to negative 18.1 and negative 17.1 percent, respectively.
    The Department therefore concludes that the burdens of standards 
level 7 and 6 for water heaters outweigh the benefits, and rejects 
these standard levels.
    The next most stringent standard level is standard level 5. This 
standard level is projected to save 34.98 quads of energy. However, 
this level also produces a life-cycle cost increase for gas water 
heaters compared to the base case, with a payback of 10.1 years, which 
is more than two thirds of the average product lifetime.
    The Department therefore concludes that the burdens of standard 
level 5 for water heaters outweigh the benefits, and rejects this 
standard level.
    After carefully considering the analysis, the Department is 
amending the National Appliance Energy Conservation Act--imposed 1990 
standard for water heaters with standard level 4. The Department 
concludes that standard level 4 for water heaters saves a significant 
amount of energy and is technologically feasible and economically 
justified.
    There would be significant energy savings at this level of 
efficiency. During the period 1996-2030, these savings are calculated 
to be 34.87 quads of primary energy. In addition, the standard could 
have a positive effect on the environment by reducing the emissions of 
NO2 and SO2 by 5,336,000 tons and 5,890,000 tons, 
respectively, or by as much as 2.77 and 2.72 percent, respectively, by 
the year 2030. Furthermore, the standard will reduce emissions of 
CO2 by 2,845 million tons, or as much as 2.93 percent, over the 
forecast period.
    The technologies that are necessary to meet this standard are 
presently available. The Department finds the level to be economically 
justified. The consumer payback of this standard level is 2.0 and 3.5 
years for electric and gas water heaters, respectively. This standard 
has the lowest life-cycle cost for all classes and is expected to 
result in a reduction in life-cycle cost of approximately $1,025 and 
$31 for electric and gas water heaters, respectively. Additionally, the 
standard is expected to double the prototypical manufacturer's long-run 
return on equity from 0.4 to 0.8 percent even though the short-run 
return on equity is projected to drop to negative 3.5 percent. However, 
as stated previously, the Department believes that the requirement of 
heat pumps for electric water heaters will cause other manufacturers, 
with the stronger financial characteristics of room air conditioner 
manufacturers, to be drawn into the mix of manufacturers offering 
electric water heating systems. The Department believes that this mix 
of manufacturers would have a positive return on equity compared to 
that projected for existing water heater manufacturers.
    The Department recognizes that establishing a standard for electric 
water heaters that essentially requires the use of heat pumps is a 
significant change for consumers and manufacturers. However, heat pump 
water heaters are not a technology that has to be developed; the 
product already exists in the marketplace. Additionally, the projected 
energy savings are very large and the forecasted benefits appear to 
outweigh the burdens. However, the magnitude of some of the changes, 
such as in first cost and product manufacturing, could make 
questionable some of the assumptions contained in the analysis and may 
warrant closer scrutiny. For example, as reported in the Technical 
Support Document, the Lawrence Berkeley Laboratory Residential Energy 
Model's computation of appliance turnover rate, i.e., the repair or 
replace decision, is based on industry data about historical annual 
shipments and does not explicitly consider the effects of increased 
first cost. A significant increase in first cost could distort this 
model. The Department assumes, however, that water heaters are 
typically replaced because of tank leaks which, because of design 
features such as glass-lined tanks and foamed-in-place insulation, are 
essentially non-repairable. Therefore, the Department believes that the 
impacts on the replacement rate, because of a substantial increase in 
first cost, is likely to be small. The Department welcomes comment on 
this assumption and other areas where it might be thought that the 
magnitude of the first cost increase or manufacturing changes might 
warrant additional or revised modeling assumptions.
    Another possible area of concern regarding this proposed standard 
is whether heat pump water heaters are physically able to be installed 
in existing space in the replacement market. The heat pump itself will 
require some additional space, and as was discussed in the product 
specific comments regarding classes for water heaters, the Department 
assumed a sufficient volume would be available to allow air circulation 
for the proper operation of the heat pump. The Department believes that 
medium and larger sizes of water heater installations would typically 
have sufficient space, being usually installed in areas such as 
basements or garages. For space-restricted applications DOE believes 
that technical solutions, such as heat pumps with provisions for 
ducting air flow, are available as well as integrated space 
conditioning and water heating heat pumps, which are already on the 
market, and could be used if and when the central heat pump system is 
replaced. For very small size installations, such as under-the-counter 
types, where sufficient space for a heat pump may not be readily 
available or where the economics of a heat pump may not be justified 
because the water heating loads are well below average, the use of 
electric instantaneous water heaters would be an effective alternate. A 
lower limit on the size of electric storage water heaters that the 
proposed standard would cover may also be a way of minimizing the space 
and low load concerns. The Department believes there are technical 
solutions to require the use of heat pump water heaters wherever 
electric storage water heaters are now used and required. This view was 
supported at the Hot Water Heat Pump Workshop held in Breckenridge, 
Colorado on June 30 through July 2, 1993. The proceedings of the 
workshop are made a part of the record of this notice and are available 
from the Department's Freedom of Information Reading Room.
     Other issues that may warrant further DOE analysis include 
consumer acceptance of possible increased noise from heat pump water 
heaters and anticipated increases in maintenance requirements in 
comparison to electric resistance water heaters. DOE is soliciting 
public comment on these issues, together with additional data or other 
information that might assist DOE in better assessing the impacts of 
this proposed standard on consumers and others.
     Because the Department has little information on the space 
constraints for replacement water heaters or the frequency with which 
small water heaters experience low annual water heating loads, the 
cost-effectiveness analysis of the proposed standard does not 
explicitly consider these factors. The Department believes the analysis 
is sufficient but would attempt to expand it to include any information 
on these or other related factors that becomes available during the 
public comment period. Based on this possible revised analysis, DOE 
would consider modifying either the proposed standard level for 
electric water heaters or the definition of the class of water heaters 
covered by the standard. If the analysis warrants, DOE may establish 
different classes for two or more sizes of electric water heaters. The 
Department specifically invites public comment on this expanded 
analysis and the regulatory alternatives described.

c. Direct Heating Equipment

1. Efficiency Levels Analyzed
    The Department examined a range of standard levels for direct 
heating equipment. In reviewing the design options necessary to achieve 
those standard levels, the Department determined that a new energy 
descriptor was needed to adequately address some of the design options 
in the analysis because the current energy descriptor, annual fuel 
utilization factor, does not include electrical consumption. For 
example, design options such as adding an induced draft fan improve 
thermal efficiency but, at the same time, increase overall electrical 
consumption which, unless accounted for in the energy descriptor, could 
lead to higher Annual Fuel Utilization Efficiencies with little or no 
net energy savings. Because of the above, the Department conducted the 
analysis, and is proposing the standards, in terms of a new energy 
descriptor, annual efficiency. The test procedure to determine this 
energy descriptor is contained in the previously mentioned Notice of 
Proposed Rulemaking. Table 4-5 presents the five efficiency levels 
selected for analysis for the 16 classes of direct heating equipment. 
Level 5 corresponds to the highest efficiency level, max tech, 
considered in the engineering analysis.

                        Table 4-5.--Standard Levels Analyzed for Direct Heating Equipment                       
                                          [Annual efficiency (percent)]                                         
----------------------------------------------------------------------------------------------------------------
                                                                         Standard level                         
                Product class                  -----------------------------------------------------------------
                                                Baseline       1          2          3          4          5    
----------------------------------------------------------------------------------------------------------------
Gas wall fan type up to 42,000 Btu/hour.......       72.2       72.2       72.2       72.2       75.6       89.2
Gas wall fan type over 42,000 Btu/hour........       73.4       73.4       73.4       73.4       76.4       89.9
Gas wall gravity type up to 10,000 Btu/hour...       59.0       59.0       59.0       67.7       67.7       81.0
Gas wall gravity type over 10,000 Btu/hour up                                                                   
 to 12,000 Btu/hour...........................       60.0       64.1       64.1       67.7       72.9       81.7
Gas wall gravity type over 12,000 Btu/hour up                                                                   
 to 15,000 Btu/hour...........................       61.0       64.9       64.9       67.9       73.2       82.1
Gas wall gravity type over 15,000 Btu/hour up                                                                   
 to 19,000 Btu/hour...........................       62.0       65.9       65.9       68.2       76.2       82.9
Gas wall gravity type over 19,000 Btu/hour up                                                                   
 to 27,000 Btu/hour...........................       63.0       66.8       68.5       73.6       76.5       83.3
Gas wall gravity type over 27,000 Btu/hour up                                                                   
 to 46,000 Btu/hour...........................       64.0       67.5       68.7       73.9       76.9       83.8
Gas wall gravity type over 46,000 Btu/hour....       65.0       68.2       71.6       74.2       73.4       84.4
Gas floor type up to 37,000 Btu/hour..........       56.0       61.3       62.7       70.7       75.8       88.6
Gas floor type over 37,000 Btu/hour...........       57.0       69.3       70.0       70.0       78.8       90.0
Gas room type up to 18,000 Btu/hour...........       57.0       62.3       64.4       64.4       69.3       85.9
Gas room type over 18,000 Btu/hour up to                                                                        
 20,000 Btu/hour..............................       58.0       65.0       67.4       69.9       74.8       87.3
Gas room type over 20,000 Btu/hour up to                                                                        
 27,000 Btu/hour..............................       63.0       67.1       67.1       67.1       74.9       88.1
Gas room type over 27,000 Btu/hour up to                                                                        
 46,000 Btu/hour..............................       64.0       67.8       71.2       71.2       76.2       88.9
Gas room type over 46,000 Btu/hour............       65.0       68.3       71.5       71.5       77.5       89.7
----------------------------------------------------------------------------------------------------------------

    Rather than presenting the results for all classes of direct 
heating equipment in today's notice, the Department selected a class of 
direct heating equipment as being representative, or typical, of the 
product, and is presenting the results only for that class. The results 
for the other classes can be found in the Technical Support Document in 
the same sections as those referenced for the representative class. The 
representative class for direct heating equipment is gravity wall 
heaters greater than 27 kBtu/hr but less than 46 kBtu/hr, which is one 
of the more prevalent classes of direct heating equipment. For this 
representative class, trial standard level 1 accomplishes the above 
efficiency improvement from the baseline by derating the burner by 20 
percent, level 2 adds electronic ignition, level 3 adds a burner box 
damper, level 4 adds the use of an induced draft fan and electronic 
ignition to the baseline unit, and level 5 assumes condensation of the 
flue gases. Similar design options are used to achieve the above 
efficiencies for the other classes of direct heating equipment and are 
found tabulated in section 1.4 of the Technical Support Document.
2. Payback Period
    Table 4-6 presents the payback period for the efficiency levels 
analyzed for the representative class of the product. For this 
representative class, standard level 1 satisfies the rebuttable 
presumption test, i.e., the additional price of purchasing a product 
will be less than three times the value of the energy savings that the 
consumer will receive during the first year. Payback for all classes of 
direct heating equipment may be found in Tables 4.17 to 4.32 of the 
Technical Support Document. 

 Table 4-6.--Payback Periods of Design Options for Room Heaters Over 46 
                                 kBtu/hr                                
                               [In years]                               
------------------------------------------------------------------------
                                                                 Payback
                        Standard level                           period 
------------------------------------------------------------------------
1.............................................................       2.3
2.............................................................       6.7
3.............................................................       7.5
4.............................................................      15.0
5.............................................................     17.6 
------------------------------------------------------------------------

3. Significance of Energy Savings
    To estimate the base case energy savings by the year 2030 due to 
revised standards, the energy consumption of new direct heating 
equipment under the base case is compared to the energy consumption of 
those sold under the candidate standard levels. For the candidate 
energy conservation standards, the Lawrence Berkeley Laboratory-
Residential Energy Model projects that over the period 1996-2030, the 
following energy savings would result for all classes of the product:

Level 1--0.04 Quad
Level 2--0.21 Quad
Level 3--0.38 Quad
Level 4--0.23 Quad
Level 5--0.23 Quad

    The above energy savings are smaller than anticipated because the 
Lawrence Berkeley Laboratory-Residential Energy Model predicts fuel 
switching from gas to electricity at trial standard levels 4 and above 
as shown in Table 3.3 of the Technical Support Document. However, the 
Department finds that the increased standards at levels 1 through 4 
considered above would result in a significant conservation of energy.
4. Economic Justification
    A. Economic impact on manufacturers and consumers. The per-unit 
increased cost to manufacturers to meet the level 1 efficiency for the 
representative class is $8.60; to meet levels 2-5, the manufacturers' 
cost increases are $19.10, $51.80, $157.60, and $227.70, respectively. 
See Technical Support Document, Table 1.16.
    At those levels of efficiency, the incremental consumer price 
increases are $24.93, $73.60, $171.34, $402.54, and $690.95 for 
standard levels 1-5, respectively. See Technical Support Document, 
Table 4.10.
    The per-unit reduction in annual cost of operation (energy expense) 
at level 1 is $10.73 for the representative class; standard level 2 
would reduce energy expenses by $17.32; standard level 3 by $29.53; 
standard level 4 by $35.43; and standard level 5 by $48.24. See 
Technical Support Document, Table 4.10.
    The Lawrence Berkeley Laboratory-Manufacturer Impact Model results 
for all classes of direct heating equipment show that revised standards 
would cause a prototypical manufacturer to have slight increases in 
short-run return on equity from the 7.4 percent in the base case except 
for the two most stringent levels where short-run return on equity 
plummets. Standard levels 1 through 5 are projected to produce short-
run return on equity's of 7.6 percent, 7.7 percent, 7.6 percent, 5.2 
percent and 0.9 percent, respectively. Revised standards have minimal 
effects on long-run return on equity. Standard levels 1 through 5 are 
projected to produce long-run return on equity's of 7.4 percent, 7.4 
percent, 7.3 percent, 7.4 percent and 7.1 percent, respectively. See 
Technical Support Document, Tables 5.1 and 5.2.
    Most financial data of the type needed to characterize the 
prototypical manufacturer are generally not available because most real 
firms are subsidiaries or divisions of larger parent companies. Hence, 
DOE assumes that the prototypical firm has largely the same financial 
characteristics (e.g. debt-equity ratio, interest rate on debt, etc.) 
as parent firms. Financial data for the parent firms are based on 
publicly available sources such as Securities and Exchange Commission 
10K reports and company annual reports.
    B. Life-cycle cost and net present value. A life-cycle cost is 
calculated for a unit meeting each of the candidate standard levels. 
For the representative class, life-cycle costs at standard levels 1 
through 3 are less than the baseline unit. Of the five candidate 
standard levels, a unit meeting level 3 has the lowest consumer life-
cycle cost. See Technical Support Document, Figure 4.10.
    However, other than at the max tech level, consumers do not 
purchase units of the same efficiency. At each candidate standard 
level, the Department determines the average change in life-cycle costs 
by considering only those consumers who are being forced by the 
standard to move from a lower efficiency unit to one which just meets 
the standard level being considered. This is done by assuming in the 
base case a distribution of purchases of units meeting the efficiencies 
of the various standard levels. The base case distribution is based on 
the distribution of current sales as a function of efficiency. As each 
standard level is examined, the change in life-cycle cost reported is 
the average change only for affected consumers. Under this scenario, 
standard level 1 would cause reductions in life-cycle costs for the 
average consumer of $79.31 for the representative class of direct 
heating equipment. Standard levels 2 and 3 would reduce average life-
cycle costs by $23.26 and $41.65, respectively. These life-cycle cost 
reductions indicate that standard levels 1 through 3 would not cause 
any economic burden on the average consumer. Standard levels 4 and 5 
would increase average life-cycle costs by $132.40 and $296.32, 
respectively. See Technical Support Document, Table 4.26.
    The Department examined the effect of different discount rates (4, 
6, and 10 percent) on the life-cycle cost curves and generally found 
little impact. The Department did not consider higher discount rates, 
since such rates would be beyond the range of real, after-tax rates 
that consumers would likely face in financing the purchase of direct 
heating equipment. Similarly, DOE did not consider different energy 
prices, including regional prices, in the life-cycle cost analysis. 
Since any standard is to be a national standard, DOE believed that 
national average energy prices were appropriate.
    The net present value analysis, a measure of the net savings to 
society, indicates that for all classes of direct heating equipment, 
standard level 1 would produce a net present value of $9 million to 
consumers. The corresponding net present values for levels 2-5 are $63 
million, $113 million, negative $259 million, and negative $930 
million, respectively. See Technical Support Document, Table 3.6.
    C. Energy savings. As indicated above, all standard levels, except 
level 5, will result in significant savings of energy consumption for 
direct heating equipment.
    D. Lessening of utility or performance of products. As indicated 
above, DOE established classes of products in order to assure that the 
standards analyzed would not lessen the existing utility or performance 
of direct heating equipment.
    E. Impact of lessening of competition. The determination of this 
factor must be made by the Attorney General.
    F. Need of the nation to save energy. In 1987, 6.1 percent of 
residential sector natural gas consumption (or 0.32 quad) was accounted 
for on a national basis by direct heating equipment.
    In addition, decreasing energy use as a result of standards will 
usually decrease air pollution. However, in the case of direct heating 
equipment, projected fuel switching from gas to electric resistance 
heat causes the energy savings to be less than it otherwise would be, 
and at some of the trial standard levels the impact on the environment 
is negative, since it takes more primary energy to heat with resistance 
electric heat than with a gas furnace. See Technical Support Document, 
Appendix D of Volume A\39\. Evaluating standards for electric direct 
heating equipment might result in standards requiring the use of heat 
pump technology which would probably resolve this abnormality, but DOE 
has not considered adding standards for electric direct heating 
equipment in this proposed rule. The resulting impact on energy use 
because of fuel switching was considered in The Department's decision-
making as discussed in the conclusion below.
---------------------------------------------------------------------------

    \39\See footnote 37.
---------------------------------------------------------------------------

    Decreases in air pollution will occur for sulfur oxides (listed in 
equivalent weight of sulfur dioxide, or SO2) at level 1. For all 
classes of direct heating equipment at standard level 1, over the years 
1996 to 2030, the total estimated SO2 reduction would be over 
5,000 tons. During this time period, the peak annual reduction of 
SO2 emissions that are expected to be emitted by power plants in 
the United States is close to 0 percent. For standard levels 2 and 3, 
the reductions are 20,000 tons and 32,000 tons, respectively. For 
standard levels 4 and 5, SO2 emissions are projected to increase 
by 72,000 tons and 320,000 tons, respectively. The highest peak annual 
increase of these levels is 0.18 percent.
    Standards at level 1 would result in a decrease in nitrogen dioxide 
(NO2) emissions. For standard level 1, over the years 1996 to 
2030, the total estimated NO2 reduction would be over 4,000 tons. 
During this time period, the peak annual reduction of NO2 
emissions that are expected to be emitted by power plants during that 
time in the United States is 0.01 percent. For standard levels 2 and 3, 
the reductions are 21,000 tons and 37,000 tons, respectively. For 
standard levels 4 and 5, NO2 emissions are projected to increase 
by 27,000 tons and 184,000 tons, respectively. The highest peak annual 
increase of these levels is 0.13 percent.
    Another consequence of the standards will be changes in (CO2) 
emissions. For standard levels 1, over the years 1996 to 2030, the 
total estimated CO2 reductions would be 2 million tons. During 
this time period, the peak annual reduction of CO2 emissions that 
are expected to be emitted by power plants in the United States is 0.01 
percent. For standard levels 2-4 the reductions are 14 million tons, 26 
million tons, and 2 million tons, respectively. The highest peak annual 
reduction of these levels is 0.03 percent. For standard level 5, 
CO2 emissions are expected to increase by 60 million tons with a 
highest peak annual increase of 0.10 percent.
    Decreasing future electricity demand is also likely to result in 
reductions in the demand for oil used in electricity generation. 
Because virtually all sources of oil, on the margin, are foreign, any 
reductions in oil demand are likely to be reflected in reductions in 
oil imports. For standard level 1, the estimated decrease in oil 
imports is 1.1 million barrels over the years 1996 to 2030. For 
standard levels 2, the reductions in oil imports are estimated to be 
3.5 and 6 million barrels, respectively; while for standard levels 4 
and 5 are estimated to result in an increase in oil imports of 15.43 
and 70.03 million barrels, respectively.
    5. Conclusion. Section 325(l)(2)(A) of the Act specifies that the 
Department must consider, for amended standards, those standards that 
``achieve the maximum improvement in energy efficiency which the 
Secretary determines is technologically feasible and economically 
justified.'' Accordingly, the Department first considered the max tech 
level of efficiency, i.e., standard level 5 for amended direct heating 
equipment standards.
    Of the standard levels analyzed, level 5 will save the most energy 
per unit but, because of fuel switching from gas to electric, this 
level actually causes an energy increase of 0.23 quad between 1996 and 
2030. In order to meet this standard, the Department assumes that all 
direct heating equipment will be condensing with induced draft and 
electronic ignition. This level produces increased life-cycle costs 
compared to the base case for all classes of product and has payback 
which exceed the average product life for all but two classes. 
Additionally, this level reduces manufacturer short-run return on 
equity from 7.4 percent in the base case to 0.9 percent and has a 
negative net present value of $1.1 billion.
    The Department therefore, concludes that the burdens of standard 
level 5 for direct heating equipment outweigh the benefits, and rejects 
the standard level.
    The next most stringent standard level, level 4, is projected to 
have energy savings of 0.23 quad, but the savings here are also reduced 
by fuel switching. This level also produces life-cycle cost increases, 
compared to the base case, of $132 for the representative class, with 
similar increases for most classes. The payback at this level is 15.0 
years for the representative class, equaling the average product life, 
with similar payback for most of the other classes. Additionally this 
level has a negative impact on the environment by increasing two of the 
three atmospheric emissions studied.
    The Department therefore concludes that the burdens of standard 
level 4 for direct heating equipment outweigh the benefits, and rejects 
the standard level.
    After carefully considering the analysis, the Department is 
amending the National Appliance Energy Conservation Act--imposed 1990 
standard for direct heating equipment with standard level 3. The 
Department concludes that standard level 3 for direct heating equipment 
saves a significant amount of energy and is technologically feasible 
and economically justified.
    There would be a significant energy savings at this level of 
efficiency. During the period 1996-2030, these savings are calculated 
to be 0.38 quad of primary energy and are essentially not affected by 
fuel switching. The standard could have a slight positive effect on the 
environment by reducing the emissions of NO2 by more than 37,000 
tons and SO2 by almost 32,000 tons by the year 2030. Furthermore, 
the standard is projected to reduce emissions of CO2 by 26 million 
tons over the forecast period.
    The technology that is necessary to meet this standard: derated 
burners, electronic ignition, and burner box dampers or induced draft, 
is presently available. The Department finds the level to be 
economically justified. The consumer payback of this standard level is 
7.5 years, approximately one-half of the average product life. This 
standard is expected to result in a reduction in life-cycle cost of 
approximately $42. Additionally, the standard is expected to have 
little or no impact on the prototypical manufacturer's return on equity 
of 7.4 percent and has a net present value of $328 million. Since this 
standard does not involve substantial redesign or retooling, the 
Department expects that it will not have negative impacts on smaller 
competitors.

d. Mobile Home Furnaces

1. Efficiency Levels Analyzed
    The Department examined a range of standard levels for mobile home 
furnaces. In reviewing the design options necessary to achieve those 
standard levels, the Department determined that a new energy descriptor 
was needed to adequately address some of the design options in the 
analysis because the current energy descriptor, annual fuel utilization 
factor, does not include electrical consumption. For example, to 
consider improvements in fan motor efficiency, the savings in 
electrical consumption would have to be accounted for in the 
descriptor. Furthermore, other design options (for instance, fan-
assisted combustion) improve thermal efficiency but, at the same time, 
increase overall electrical consumption which, unless accounted for in 
the energy descriptor, could lead to higher annual fuel utilization 
factors with little or no net energy savings. Lastly, since annual fuel 
utilization factor is defined in the Act in terms of an isolated 
combustion system, there are steps that could be taken to obtain a 
higher annual fuel utilization factor, such as adding jacket 
insulation, which would have no impact on the efficiency of a furnace 
installed indoors. Since practically all mobile home furnaces are 
installed indoors, the current descriptor is not entirely appropriate 
for this rulemaking. Because of the above, the Department conducted the 
analysis, and is proposing the standards, in terms of a new energy 
descriptor, annual efficiency. The test procedure to determine this 
energy descriptor is contained in the previously mentioned Notice of 
Proposed Rulemaking. Table 4-7 presents the six efficiency levels 
selected for analysis for the two classes of mobile home furnaces. 
Level 6 corresponds to the highest efficiency level, max tech, 
considered in the engineering analysis.

                          Table 4-7.--Standard Levels Analyzed for Mobile Home Furnaces                         
                                          [Annual efficiency (percent)]                                         
----------------------------------------------------------------------------------------------------------------
                                                                    Standard level                              
           Product class            ----------------------------------------------------------------------------
                                      Baseline      1          2          3          4          5          6    
----------------------------------------------------------------------------------------------------------------
Gas Fired..........................       72.7       74.3       77.1       79.0       79.1       87.4       89.5
Oil Fired..........................       72.8       74.7       74.7       76.5       76.5       83.2      85.8 
----------------------------------------------------------------------------------------------------------------

    Rather than presenting the results for all classes of mobile home 
furnaces in today's notice, the Department selected a class of mobile 
home furnaces as being representative, or typical, of the product, and 
is presenting the results only for that class. The results for the 
other classes can be found in the Technical Support Document in the 
same sections as those referenced for the representative class. The 
representative class for mobile home furnaces is gas fired mobile home 
furnaces, which is the most prevalent class of mobile home furnaces. 
For this representative class, trial standard level 1 accomplishes the 
above efficiency improvement from the baseline by the use of improved 
fan motor efficiency, level 2 adds a burner box damper, level 3 adds an 
improved heat exchanger, level 4 substitutes fan-assisted combustion 
and electronic ignition for the burner box damper and improved heat 
exchanger, level 5 assumes condensing of the flue gases and level 6 
adds continuous furnace modulation. Similar design options are used to 
achieve the above efficiencies for oil-fired mobile home furnaces and 
are found tabulated in Section 1.5 of the Technical Support Document.
2. Payback Period
    Table 4-8 presents the payback period for the efficiency levels 
analyzed for the representative class of the product. For this 
representative class, standard levels 1 and 2 satisfy the rebuttable 
presumption test, i.e., the additional price of purchasing a product 
will be less than three times the value of the energy savings that the 
consumer will receive during the first year. Payback for all classes of 
mobile home furnaces may be found in Tables 4.3 and 4.4 of the 
Technical Support Document. 

 Table 4-8.--Payback Periods of Design Options for Gas Fired Mobile Home
                                Furnaces                                
                               [In years]                               
------------------------------------------------------------------------
                                                                Payback 
                       Standard level                           period  
------------------------------------------------------------------------
1...........................................................         0.6
2...........................................................         3.0
3...........................................................         6.7
4...........................................................         7.5
5...........................................................         7.6
6...........................................................       13.0 
------------------------------------------------------------------------

3. Significance of Energy Savings
    To estimate the energy savings by the year 2030 due to revised 
standards, the energy consumption of new mobile home furnaces under the 
base case is compared to the energy consumption of those sold under the 
candidate standard levels. For the candidate energy conservation 
standards, the Lawrence Berkeley Laboratory-Residential Energy Model 
projects that over the period 1996-2030, the following energy savings 
would result for all classes of the product:

Level 1--0.02 Quad
Level 2--0.05 Quad
Level 3--0.05 Quad
Level 4--0.03 Quad
Level 5--0.11 Quad
 Level 6---0.02 Quad

    The above energy savings are smaller than anticipated because the 
Lawrence Berkeley Laboratory-Residential Energy Model predicts fuel 
switching from gas to electricity at trial standard levels 2 and above 
as shown in Table 3.4 of the Technical Support Document. However, the 
Department finds that each of the increased standards levels considered 
above except for level 6, the max tech level, would result in a 
significant conservation of energy.
4. Economic Justification.
     A. Economic Impact on Manufacturers and Consumers. The Department 
is refraining from publishing the per-unit increased cost to 
manufacturers to meet the trial standard levels for mobile home 
furnaces due to confidentiality considerations. The Department has 
determined that the data provided is confidential pursuant to 10 CFR 
1004.11. There are only two manufacturers of this product, and they 
would provide data only if DOE agreed not to publish the data. Today's 
proposed rule is based upon the Department's consideration of these 
data, and others, e.g., data from component suppliers, as described in 
Section 1.5 of the Technical Support Document.
    At the considered levels of efficiency, the consumer price 
increases are $5.74 for level 1 and $76.80, $186.35, $273.71, $569.32, 
and $1151.56 for standard levels 2-6, respectively. See Technical 
Support Document, Table 4.1.
    The per-unit reduction in annual cost of operation (energy expense) 
at level 1 is $9.56 for the representative class; standard level 2 
would reduce energy expenses by $25.71; standard level 3 by $35.54; 
standard level 4 by $44.96; standard level 5 by $83.20; and standard 
level 6 by $100.15. See Technical Support Document, Table 4.1.
    The Lawrence Berkeley Laboratory-Manufacturer Impact Model results 
for all classes of mobile home furnaces show that revised standards 
would cause a prototypical manufacturer to have some fluctuations in 
short-run return on equity from the 7.3 percent return in the base 
case, especially at the two most stringent levels. Standard levels 1 
through 6 are projected to produce short-run return on equity's of 7.2 
percent, 7.3 percent, 6.8 percent, 7.3 percent, 3.3 percent and 1.9 
percent respectively. However, revised standards have little or minimal 
effect on the prototypical manufacturer's long-run return on equity. 
Standard levels 1 through 6 are projected to produce long- run return 
on equity's of 7.3 percent, 7.2 percent, 7.2 percent, 7.2 percent, 6.1 
percent and 6.8 percent, respectively. See Technical Support Document, 
Tables 5.1 and 5.2.
    Most financial data of the type needed to characterize the 
prototypical manufacturer are generally not available because most real 
firms are subsidiaries or divisions of larger parent companies. Hence, 
DOE assumes that the prototypical firm has largely the same financial 
characteristics (e.g. debt-equity ratio, interest rate on debt, etc.) 
as parent firms. Financial data for the parent firms are based on 
publicly available sources such as Securities and Exchange Commission 
10K reports and company annual reports.
    B. Life-cycle cost and net present value. A life-cycle cost is 
calculated for a unit meeting each of the candidate standard levels. 
For the representative class, life-cycle costs at all standard levels 
other than level 6, the max tech level, are less than the baseline 
unit. Of the six candidate standard levels, a unit meeting level 5 has 
the lowest consumer life-cycle cost. See Technical Support Document, 
Figure 4.1.
    However, other than at the max tech level, consumers do not 
purchase units of the same efficiency. At each candidate standard 
level, the Department determines the average change in life-cycle costs 
by considering only those consumers who are being forced by the 
standard to move from a lower efficiency unit to one which just meets 
the standard level being considered. This is done by assuming in the 
base case a distribution of purchases of units meeting the efficiencies 
of the various standard levels. The base case distribution is based on 
the distribution of current sales as a function of efficiency. As each 
standard level is examined, the change in life-cycle cost reported is 
the average change only for affected consumers. Under this scenario, 
standard level 1 would cause reductions in life-cycle costs for the 
average affected consumer of $100.83 for the representative class of 
mobile home furnace; standard level 2 would reduce average life-cycle 
costs by $210.08; standard level 3, by $210.16; standard level 4, by 
$227.91; and standard level 5, by $358.96. These life-cycle cost 
reductions indicate that no standard level, other than max tech, would 
cause any economic burden on the average consumer. At standard level 6, 
the average life-cycle costs are projected to increase by $34.33, 
compared to the base case. See Technical Support Document, Table 4.3.
    The Department examined the effect of different discount rates (4, 
6, and 10 percent) on the life-cycle cost curves and generally found 
little impact. The Department did not consider higher discount rates, 
since such rates would be beyond the range of real, after-tax rates 
that consumers would likely face in financing the purchase of mobile 
home furnaces. Similarly, DOE did not consider different energy prices, 
including regional prices, in the life-cycle cost analysis. Since any 
standard is to be a national standard, DOE believed that national 
average energy prices were appropriate.
    The net present value analysis, a measure of the net savings to 
society, indicates that for all classes of mobile home furnaces, 
standard level 1 would produce a net present value of $12 million to 
consumers. The corresponding 0net present values for standard levels 2-
6 are all negative at $175 million, $839 million, $1.39 billion, $2.86 
billion and $5.4 billion, respectively. See Technical Support Document, 
Table 3.6.
    C. Energy savings. As indicated above, standards will result in 
significant savings of energy consumption for mobile home furnaces.
    D. Lessening of utility or performance of products. As indicated 
above, DOE established classes of products in order to assure that the 
standards analyzed would not lessen the existing utility or performance 
of mobile home furnaces.
    E. Impact of lessening competition. The determination of this 
factor must be made by the Attorney General.
    F. Need to save energy. In 1987, 1.9 percent of residential sector 
natural gas consumption (or 0.1 quad) was accounted for on a national 
basis by mobile home furnaces.
    In addition, decreasing energy use as a result of standards will 
usually decrease air pollution. However, in the case of mobile home 
furnaces, projected fuel switching from gas to electric resistance heat 
causes the energy savings to be less than it otherwise would be, and at 
most of the higher trial standard levels the impact on the environment 
is negative, since it takes more primary energy to heat with resistance 
electric heat than with a gas furnace. See Technical Support Document, 
Appendix D of Volume A.\40\ Evaluating standards for electric mobile 
home furnaces might result in standards requiring the use of heat pump 
technology which would probably resolve this abnormality, but DOE has 
not considered adding standards for electric mobile home furnaces in 
this proposed rule. The resulting impact on energy use because of fuel 
switching was considered in The Department's decision-making as 
discussed in the conclusion below.
---------------------------------------------------------------------------

    \40\See footnote 37.
---------------------------------------------------------------------------

    Decreases in air pollution will occur for sulfur oxides (listed in 
equivalent weight of sulfur dioxide, or SO2) at level 1. For all 
classes of mobile home furnaces at standard level 1, over the years 
1996 to 2030, the total estimated SO2 reduction would be 
approximately 1,000 tons. During this time period, the peak annual 
reduction of SO2 emissions that are expected to be emitted by 
power plants in the United States is less than 0.01 percent. For 
standard levels 2-6, SO2 emissions are projected to increase by 
5,000 tons; 29,000 tons; 54,000 tons; 122,000 tons; and 270,000 tons, 
respectively. The highest peak annual increase of these levels is 0.18 
percent.
    Standards at levels 1 and 2 would result in a decrease in nitrogen 
dioxide (NO2) emissions. For standard level 1, over the years 1996 
to 2030, the total estimated NO2 reduction would be over 1,000 
tons. During this time period, the peak annual reduction of NO2 
emissions that are expected to be emitted by power plants in the United 
States is less than 0.01 percent. For standard level 2, the total 
estimated NO2 reduction would be less than 1,000 tons. For 
standard levels 3-6, NO2 emissions are projected to increase by 
7,000 tons; 16,000 tons; 34,000 tons; and 87,000 tons, respectively. 
The highest peak annual increase of these levels is 0.05 percent.
    Another consequence of the standards will be the reduction of 
carbon dioxide (CO2) emissions at levels 1 and 2. For either of 
these levels, over the years 1996 to 2030, the total estimated CO2 
reduction would be approximately 1 million tons. During this time 
period, the peak annual reduction of CO2 emissions that are 
expected to be emitted by power plants in the United States is less 
than 0.01 percent. For standard levels 3-6, CO2 emissions are 
increased by 2 million tons; 8 million tons; 15 million tons; and 49 
million tons, respectively. The highest peak annual increase of these 
levels is 0.05 percent.
    Decreasing future electricity demand is also likely to result in 
reductions in the demand for oil used in electricity generation. 
Because virtually all sources of oil, on the margin, are foreign, any 
reductions in oil demand are likely to be reflected in reductions in 
oil imports. For standard level 1, the estimated decrease in oil 
imports is 0.75 million barrels over the years 1996 to 2030. Standard 
levels 2-6, are estimated to result in an increase in oil imports of 
2.87, 18.14, 35.16, 77.82 and 174.02 million barrels, respectively.
5. Conclusion
    Section 325(l)(2)(A) of the Act specifies that the Department must 
consider, for amended standards, those standards that ``achieve the 
maximum improvement in energy efficiency which the Secretary determines 
is technologically feasible and economically justified.'' Accordingly, 
the Department first considered the max tech level of efficiency, i.e., 
standard level 6 for amended mobile home furnace standards.
    Of the standard levels analyzed, level 6 will save the most energy 
per unit but, because of fuel switching from gas to electric, this 
level has negative overall energy savings (-0.02 quad between 1996 and 
2030). In order to meet this standard, the Department assumes that all 
mobile home furnaces will be condensing furnaces with full modulation. 
At nearly triple the purchase price to consumers, this level produces 
negative life-cycle cost savings compared to the base case of $154 and 
has a payback of 13.0 years, which is more than half of the average 
product lifetime. The level also reduces manufacturer short-run return 
on equity by over 70 percent and has a negative net present value of 
$8.9 billion, as well as increasing all three environmental atmospheric 
emissions studied.
    The Department therefore, concludes that the burdens of standard 
level 6 for mobile home furnaces outweigh the benefits, and rejects the 
standard level.
    The next most stringent standard level is standard level 5. This 
standard level is projected to save the most energy of any of the 
mobile home furnace trial standard levels, 0.11 quad, but the savings 
here are also reduced by fuel switching. This level produces the 
highest life-cycle cost savings compared to the base case of $239 and 
has a payback of 7.6 years, which is slightly more than one third of 
the average product lifetime. However, the level reduces manufacturer 
short-run return on equity by over 50 percent and has a negative net 
present value of $4.6 billion, as well as increasing all three 
atmospheric emissions studied.
    The Department therefore concludes that the burdens of standard 
level 5 for mobile home furnaces outweigh the benefits, and rejects the 
standard level.
    The three next most stringent standard levels, 4, 3, and 2, are 
projected to have energy savings ranging from .03 to .05 quad, but the 
savings here are also reduced by fuel switching. These levels also 
produce life-cycle cost savings compared to the base case ranging from 
$108 to $210 with payback ranging from 7.5 to 3.0 years and have little 
or no impact on manufacturer return on equity. However, these levels 
all have negative net present values ranging from negative $1.39 
billion to negative $.175 billion, as well as increasing one or more of 
the three atmospheric emissions studied.
    The Department therefore concludes that the burdens of standard 
levels 4, 3 and 2 for mobile home furnaces outweigh their benefits, and 
rejects the standard levels.
    After carefully considering the analysis, the Department is 
amending the National Appliance Energy Conservation Act-imposed 1990 
standard for mobile home furnaces with standard level 1 for mobile home 
furnaces. The Department concludes that standard level 1 for mobile 
home furnaces saves a significant amount of energy and is 
technologically feasible and economically justified.
    There would be small but significant energy savings at this level 
of efficiency. During the period 1996-2030, these savings are 
calculated to be 0.02 quad of primary energy and are essentially not 
affected by fuel switching. In addition, the standard could have a 
slight positive effect on the environment by reducing the emissions of 
NO2 and SO2 by as much as 1,000 tons each by the year 2030. 
Furthermore, the standard will reduce emissions of CO2 by 1 
million tons over the forecast period.
    The technology that is necessary to meet this standard, improved 
fan motor efficiency, is presently available. The Department finds the 
level to be economically justified. The consumer payback of this 
standard level is 0.6 years. This standard is expected to result in a 
reduction in life-cycle cost of approximately $102. Additionally, the 
standard is expected to have 'essentially no impact on the prototypical 
manufacturer's return on equity of 7.3 percent. Since this standard 
does not involve substantial redesign or retooling, the Department 
expects that it will not have negative impacts on the two competitors.

e. Kitchen Ranges and Ovens

1. Efficiency Levels Analyzed
    The Department examined a range of standard levels for kitchen 
ranges and ovens. Table 4-9 presents the five efficiency levels that 
had been selected for analysis for the eight classes of kitchen ranges 
and ovens. Level 5 corresponds to the highest efficiency level, max 
tech, considered in the engineering analysis.

                        Table 4-9.--Standard Levels Analyzed for Kitchen Ranges and Ovens                       
                                               [Annual energy use]                                              
----------------------------------------------------------------------------------------------------------------
                                                                         Standard level                         
                 Product class                 -----------------------------------------------------------------
                                                 Baseline      1          2          3          4          5    
----------------------------------------------------------------------------------------------------------------
Electric ovens, self-cleaning (kWh)...........      346.7      346.7      328.7      287.3      266.8      209.2
Electric ovens, non-self-cleaning (kWh).......      327.2      278.3      256.8      217.5      217.5      157.3
Gas ovens, self-cleaning (MMBtu)..............       2.16       2.16       1.98       1.89       1.64       1.42
Gas ovens, non-self-cleaning (MMBtu)..........       3.58       2.05       1.38       1.14       1.14       1.07
Microwave ovens (kWh).........................      270.0      239.0      236.0      233.3      230.0      228.2
Electric cooking top, coil element (kWh)......      271.1      271.1      260.2      257.7      257.7      257.7
Electric cooking top, smooth element (kWh)....      293.7      293.7      293.7      293.7      289.2      258.5
Gas cooking top (MMBtu).......................       3.89       3.76       1.71       1.63       1.63       1.63
----------------------------------------------------------------------------------------------------------------

    For analytical purposes the Department segmented the above classes 
into three groups: Conventional ovens, conventional cooking tops and 
microwave ovens. Rather than presenting the results for all classes of 
ranges and ovens in today's notice, the Department selected a class or 
classes of ranges and ovens as being representative, or typical, of 
each group of the product, and is presenting the results only for those 
classes. The results for the other classes can be found in the 
Technical Support Document in the same sections as those referenced for 
the representative class. The results and conclusions for each group 
are presented separately below.
    Efficiency levels analyzed for conventional ovens. The Department 
selected two classes of conventional ovens, non-self-cleaning electric 
ovens and non-self-cleaning gas ovens, as being representative of 
conventional ovens. For non-self-cleaning electric ovens, trial 
standard level 1 accomplishes the above efficiency improvement from the 
baseline by improved door seals, reduced venting, reflective surfaces 
and by not having an oven door window; level 2 increases insulation; 
levels 3 and 4 add convection and reduced thermal mass, and level 5 
adds improved insulation, reduced conduction losses, and an oven 
separator and is a biradiant oven. For non-self-cleaning gas ovens, 
trial standard level 1 accomplishes the above efficiency improvement 
from the baseline by incorporating an electric ignition and by not 
having an oven door window; level 2 adds improved door seals, reduced 
venting, reflective surfaces and increased insulation; levels 3 and 4 
add convection, reduced thermal mass and improved insulation, and level 
5 adds an oven separator and reduced conduction losses.
    Efficiency levels analyzed for conventional cooking tops. The 
Department selected two classes of conventional cooking tops, electric-
coil cooking tops and gas cooking tops, as being representative of 
conventional cooking tops. For electric-coil cooking tops, trial 
standard level 1 remains at the baseline while level 2 accomplishes the 
above efficiency improvement from the baseline by improved heating 
element contact, level 3 adds reflective surfaces, and levels 4 and 5 
for this class are the same as level 3. For gas cooking tops, trial 
standard level 1 accomplishes the above efficiency improvement from the 
baseline by having reduced burner excess air, level 2 adds electronic 
ignition, level 3 adds sealed burners and reflective surfaces, and 
levels 4 and 5 for this class are the same as level 3.
    Efficiency levels analyzed for microwave ovens. The Department 
considers microwave ovens to comprise one class. For microwave ovens, 
trial standard level 1 accomplishes the above efficiency improvement 
from the baseline by incorporating a more efficient power supply, level 
2 assumes a more efficient fan, in level 3 the wave guide is modified, 
level 4 assumes an improved magnetron, and level 5 adds reflective 
surfaces.

2. Payback Period for Conventional Ovens

    Table 4-10 presents the payback period for the efficiency levels 
analyzed for the representative classes of conventional ovens. For both 
representative classes, standard level 1 satisfies the rebuttable 
presumption test, i.e., the additional price of purchasing a product 
will be less than three times the value of the energy savings that the 
consumer will receive during the first year.

  Table 4-10.--Payback Periods of Design Options for Conventional Ovens 
                               [In years]                               
------------------------------------------------------------------------
                                                         Payback period 
                    Standard level                     -----------------
                                                          Gas   Electric
------------------------------------------------------------------------
1.....................................................     1.8       2.7
2.....................................................     3.7       3.7
3.....................................................     7.5       4.9
4.....................................................     7.5       4.9
5.....................................................    18.9      15.7
------------------------------------------------------------------------

    Payback period for conventional cooking tops. Table 4-11 presents 
the payback period for the efficiency levels analyzed for the 
representative classes of conventional cooking tops. For the gas 
representative class, standard level 1 satisfies the rebuttable 
presumption test, i.e., the additional price of purchasing a product 
will be less than three times the value of the energy savings that the 
consumer will receive during the first year.

 Table 4-11.--Payback Periods of Design Options for Conventional Cooking
                                  Tops                                  
                               [In years]                               
------------------------------------------------------------------------
                                                         Payback period 
                    Standard level                     -----------------
                                                          Gas   Electric
------------------------------------------------------------------------
1.....................................................     1.7       N/A
2.....................................................     7.0       5.2
3.....................................................    10.1       9.8
4.....................................................    10.1       9.8
5.....................................................    10.1       9.8
------------------------------------------------------------------------

    Payback period for microwave ovens. Table 4-12 presents the payback 
period for the efficiency levels analyzed for microwave ovens. Levels 1 
through 3 satisfy the rebuttable presumption test, i.e., the additional 
price of purchasing a product will be less than three times the value 
of the energy savings that the consumer will receive during the first 
year.

   Table 4-12.--Payback Periods of Design Options for Microwave Ovens   
                               [In years]                               
------------------------------------------------------------------------
                                                                 Payback
                        Standard level                           period 
------------------------------------------------------------------------
1.............................................................       2.1
2.............................................................       2.3
3.............................................................       2.9
4.............................................................       7.4
5.............................................................      13.0
------------------------------------------------------------------------

3. Significance of Energy Savings for Conventional Ovens

    To estimate the energy savings by the year 2030 due to revised 
standards, the energy consumption of new conventional ovens under the 
base case is compared to the energy consumption of those sold under the 
candidate standard levels. For the candidate energy conservation 
standards, the Lawrence Berkeley Laboratory-Residential Energy Model 
projects that over the period 1996-2030, the following energy savings 
would result for all classes of product:

Level 1--0.69 Quad
Level 2--1.41 Quads
Level 3--2.40 Quads
Level 4--2.69 Quads
Level 5--3.88 Quads

    The Department finds that each of the increased standards levels 
considered above would result in a significant conservation of energy.
    Significance of energy savings for conventional cooking tops. To 
estimate the energy savings by the year 2030 due to revised standards, 
the energy consumption of new conventional cooking tops under the base 
case is compared to the energy consumption of those sold under the 
candidate standard levels. For the candidate energy conservation 
standards, the Lawrence Berkeley Laboratory-Residential Energy Model 
projects that over the period 1996-2030, the following energy savings 
would result for all classes of product:

Level 1--0.02 Quad
Level 2--2.54 Quads
Level 3--2.68 Quads
Level 4--2.85 Quads
Level 5--3.04 Quads

    The Department finds that each of the increased standards levels 
considered above would result in a significant conservation of energy.
    Significance of energy savings for microwave ovens. To estimate the 
energy savings by the year 2030 due to revised standards, the energy 
consumption of new microwave ovens under the base case is compared to 
the energy consumption of those sold under the candidate standard 
levels. For the candidate energy conservation standards, the Lawrence 
Berkeley Laboratory-Residential Energy Model projects that over the 
period 1996-2030, the following energy savings would result:

Level 1--0.46 Quad
Level 2--0.57 Quad
Level 3--0.67 Quad
Level 4--0.77 Quad
Level 5--0.84 Quad

    The Department finds that each of the increased standards levels 
considered above would result in a significant conservation of energy.

4. Economic Justification

    A. Economic impact on manufacturers and consumers. Conventional 
ovens. The per-unit increased cost to manufacturers to meet the level 1 
efficiency for gas non-self-cleaning ovens is $5.92; to meet level 2, 
the manufacturers' cost increase is $14.40, levels 3 and 4 are $29.75, 
and level 5 is $61.64. The per-unit increased cost to manufacturers to 
meet the level 1 efficiency for electric non-self-cleaning ovens is 
$4.21; to meet level 2, the manufacturers' cost increase is $8.45, 
levels 3 and 4 are $19.11, and level 5 is $100.12. See Technical 
Support Document, Tables 1.9 and 1.11.
     At those levels of efficiency, the consumer price increase for gas 
non- self-cleaning ovens at level 1 is $13.84; to meet level 2, the 
cost increase is $36.56, levels 3 and 4 are $69.00, and level 5 is 
$161.09. For electric non-self-cleaning ovens the cost at level 1 is 
$8.84; to meet level 2, the cost increase is $18.73, levels 3 and 4 are 
$41.30, and level 5 is $213.80. See Technical Support Document, Tables 
4.4 and 4.6.
    The per-unit reduction in annual cost of operation (energy expense) 
at level 1 is $8.38 for gas non-self-cleaning ovens; standard level 2 
would reduce energy expenses by $13.32; standard levels 3 and 4 by 
$14.82; and standard level 5 by $15.35. For electric non-self-cleaning 
ovens level 1 would reduce energy expenses by $4.22; standard level 2 
by $6.07; levels 3 and 4 by $9.45; and level 5 by $14.63. See Technical 
Support Document, Tables 4.4 and 4.6.
    The Lawrence Berkeley Laboratory-Manufacturer Impact Model results 
for all classes of conventional ovens show that revised standards would 
have little or no effect on a prototypical manufacturer's short-run 
return on equity from the 8.6 percent in the base case. Standard levels 
1 through 5 are projected to produce short-run returns on equity of 8.6 
percent, 8.6 percent, 8.6 percent, 8.5 percent and 8.1 percent, 
respectively. Revised standards have similar effects on long-run return 
on equity. Standard levels 1 through 5 are projected to produce long-
run return on equity's of 8.6 percent, 8.6 percent, 8.6 percent, 8.6 
percent and 9.1 percent, respectively. See Technical Support Document, 
Tables 5.1 and 5.2.
    Most financial data of the type needed to characterize the 
prototypical manufacturer are generally not available because most real 
firms are subsidiaries or divisions of larger parent companies. Hence, 
DOE assumes that the prototypical firm has largely the same financial 
characteristics (e.g. debt-equity ratio, interest rate on debt, etc.) 
as parent firms. Financial data for the parent firms are based on 
publicly available sources such as Securities and Exchange Commission 
10K reports and company annual reports.
    Conventional cooking tops. The per-unit increased cost to 
manufacturers to meet the level 1 efficiency for gas cooking tops is 
$0.78; to meet level 2, the manufacturers' cost increase is $15.57, and 
levels 3, 4 and 5 are $41.71. The per-unit increased cost to 
manufacturers to meet the level 1 efficiency for electric-coil cooking 
tops is zero, since for this class level 1 is the same as the baseline; 
to meet level 2, the manufacturers' cost increase is $2.28, and levels 
3, 4 and 5 are $5.31. See Technical Support Document, Tables 1.4 and 
1.6.
    At those levels of efficiency, the consumer price increase for gas 
cooking tops at level 1 is $1.63; to meet level 2, the cost increase is 
$113.38 and levels 3, 4 and 5 are $168.08. For electric-coil cooking 
tops, the cost at level 1 is unchanged, since it is at the baseline; to 
meet level 2, the cost increase is $4.79, and levels 3, 4 and 5 are 
$11.24. See Technical Support Document, Tables 4.1 and 4.3.
    The per-unit reduction in annual cost of operation (energy expense) 
at level 1 is $0.95 for gas cooking tops; standard level 2 would reduce 
energy expenses by $16.09 and standard levels 3, 4 and 5 by $16.68. For 
electric-coil cooking tops, level 1 would not reduce energy expenses 
since it is at the baseline; standard level 2 would reduce energy 
expenses by $0.93 and levels 3, 4 and 5 by $1.15. See Technical Support 
Document, Tables 4.1 and 4.3.
    The Lawrence Berkeley Laboratory-Manufacturer Impact Model results 
for all classes of conventional cooking tops show that revised 
standards would have slight impacts on a prototypical manufacturer's 
short-run return on equity from the 8.6 percent in the base case. 
Standard levels 1 through 5 are projected to produce short-run returns 
on equity of 8.6 percent, 8.4 percent, 8.6 percent, 8.7 percent and 8.7 
percent, respectively. Revised standards have similar effects on long-
run return on equity, with some increases at the higher standard 
levels. Standard levels 1 through 5 are projected to produce long-run 
returns on equity of 8.6 percent, 8.2 percent, 8.8 percent, 9.5 percent 
and 10.0 percent, respectively. See Technical Support Document, Tables 
5.1 and 5.2.
    Most financial data of the type needed to characterize the 
prototypical manufacturer are generally not available because most real 
firms are subsidiaries or divisions of larger parent companies. Hence, 
DOE assumes that the prototypical firm has largely the same financial 
characteristics (e.g. debt-equity ratio, interest rate on debt, etc.) 
as parent firms. Financial data for the parent firms are based on 
publicly available sources such as Securities and Exchange Commission 
10K reports and company annual reports.
    Microwave ovens. The per-unit increased cost to manufacturers to 
meet the level 1 efficiency for microwave ovens is $5.00; to meet level 
2, the manufacturers' cost increase is $6.05; level 3 is $7.90; level 4 
is $20.40; and level 5 is $36.80. See Technical Support Document, Table 
1.15.
    At those levels of efficiency, the consumer price increase for 
microwave ovens at level 1 is $5.49; to meet level 2, the cost increase 
is $6.78; level 3 is $9.14; level 4 is $25.38, and level 5 is $46.80. 
See Technical Support Document, Table 4.8.
    The per-unit reduction in annual cost of operation (energy expense) 
at level 1 is $2.67 for microwave ovens; standard level 2 would reduce 
energy expenses by $2.93; standard level 3 by $3.16; level 4 by $3.44; 
and level 5 by $3.60. See Technical Support Document, Table 4.8.
    The Lawrence Berkeley Laboratory-Manufacturer Impact Model results 
for microwave ovens show that revised standards would have little 
effect, except at the max tech, on a prototypical manufacturer's short-
run return on equity from the 8.6 percent in the base case. Standard 
levels 1 through 5 are projected to produce short-run returns on equity 
of 9.0 percent, 9.0 percent, 8.8 percent, 8.0 percent and 6.8 percent, 
respectively. Revised standards have almost no effect on long-run 
return on equity. Standard levels 1 through 5 are projected to produce 
long-run returns on equity of 8.6 percent, 8.6 percent, 8.6 percent, 
8.7 percent and 8.8 percent, respectively. See Technical Support 
Document, Tables 5.1 and 5.2.
    Most financial data of the type needed to characterize the 
prototypical manufacturer are generally not available because most real 
firms are subsidiaries or divisions of larger parent companies. Hence, 
DOE assumes that the prototypical firm has largely the same financial 
characteristics (e.g. debt-equity ratio, interest rate on debt, etc.) 
as parent firms. Financial data for the parent firms are based on 
publicly available sources such as Securities and Exchange Commission 
10K reports and company annual reports.
    B. Life-cycle cost and net present value. Conventional ovens. A 
life-cycle cost is calculated for a unit meeting each of the candidate 
standard levels. For the representative classes, life-cycle costs at 
all standard levels other than level 5, the max tech level, for 
electric non-self-cleaning ovens, are less than the baseline unit. Of 
the five candidate standard levels, units meeting level 3 or 4 have the 
lowest consumer life-cycle cost for electric non-self-cleaning ovens 
whereas for gas non-self-cleaning ovens, the lowest life-cycle cost 
occurred for a unit meeting level 2. See Technical Support Document, 
Tables 4.4 and 4.6.
    However, other than at the max tech level, consumers do not 
purchase units of the same efficiency. At each candidate standard 
level, the Department determines the average change in life-cycle costs 
by considering only those consumers who are being forced by the 
standard to move from a lower efficiency unit to one which just meets 
the standard level being considered. This is done by assuming in the 
base case a distribution of purchases of units meeting the efficiencies 
of the various standard levels. The base case distribution is based on 
the distribution of current sales as a function of efficiency. As each 
standard level is examined, the change in life-cycle cost reported is 
the average change only for affected consumers. Under this scenario, 
standard level 1 would cause reductions in life-cycle costs for the 
average affected consumer of $73.09 for the representative class of gas 
non-self-cleaning ovens; standard level 2 would reduce average life-
cycle costs by $42.07; standard levels 3 and 4, by $26.37; while 
standard level 5 would result in an increase of $59.83. For the 
representative class of electric non-self-cleaning ovens, standard 
level 1 would cause reductions in life-cycle costs for the average 
consumer of $27.29; standard level 2 would reduce average life-cycle 
costs by $38.05; standard levels 3 and 4, by $53.25; while standard 
level 5 would result in an increase of $61.41. The life-cycle cost 
reductions indicate that no standard level, other than max tech, would 
cause any economic burden on the average consumer. See Technical 
Support Document, Tables 4.12 and 4.14.
    The Department examined the effect of different discount rates (4, 
6, and 10 percent) on the life-cycle cost curves and generally found 
little impact. The Department did not consider higher discount rates, 
since such rates would be beyond the range of real, after-tax rates 
that consumers would likely face in financing the purchase of ovens. 
Similarly, DOE did not consider different energy prices, including 
regional prices, in the life-cycle cost analysis. Since any standard is 
to be a national standard, DOE believed that national average energy 
prices were appropriate.
    The net present value analysis, a measure of the net savings to 
society, indicates that for all classes of conventional ovens, standard 
level 1 would produce a net present value of $1.20 billion to 
consumers. The corresponding net present values for levels 2-5 are 
$0.52 billion, $1.09 billion, $1.12 billion, and negative $2.38 
billion, respectively. See Technical Support Document, Table 3.6.
    Conventional cooking tops. A life-cycle cost is calculated for a 
unit meeting each of the candidate standard levels. For the 
representative classes, life-cycle costs at all standard levels are 
less than the baseline unit. However, it should be noted that for 
another class, electric smooth element cooking tops, there are life-
cycle cost increases for units meeting levels 4 and 5. Of the five 
candidate standard levels, units meeting level 2 have the lowest 
consumer life-cycle costs for the representative classes. See Technical 
Support Document, Tables 4.1 to 4.3.
    However, other than at the max tech level, consumers do not 
purchase units of the same efficiency. At each candidate standard 
level, the Department determines the average change in life-cycle costs 
by considering only those consumers who are being forced by the 
standard to move from a lower efficiency unit to one which just meets 
the standard level being considered. This is done by assuming in the 
base case a distribution of purchases of units meeting the efficiencies 
of the various standard levels. The base case distribution is based on 
the distribution of current sales as a function of efficiency. As each 
standard level is examined, the change in life-cycle cost reported is 
the average change only for affected consumers. Under this scenario, 
standard level 1 would cause reductions in life-cycle costs for the 
average affected consumer of $8.96 for the representative class of gas 
cooking tops; standard level 2 would reduce average life-cycle costs by 
$66.08 and standard levels 3, 4 and 5, by $18.05. For the 
representative class of electric-coil cooking tops, standard level 1 
would cause no change in life-cycle costs for the average consumer 
since it is the same as the baseline; standard level 2 would reduce 
average life-cycle costs by $5.69 and standard levels 3, 4, and 5 by 
$1.64. These life-cycle cost reductions indicate that no standard level 
would cause any economic burden on the average consumer. See Technical 
Support Document, Tables 4.9 and 4.11.
    The Department examined the effect of different discount rates (4, 
6, and 10 percent) on the life-cycle cost curves and generally found 
little impact. The Department did not consider higher discount rates, 
since such rates would be beyond the range of real, after-tax rates 
that consumers would likely face in financing the purchase of ovens. 
Similarly, DOE did not consider different energy prices, including 
regional prices, in the life-cycle cost analysis. Since any standard is 
to be a national standard, DOE believed that national average energy 
prices were appropriate.
    The net present value analysis, a measure of the net savings to 
society, indicates that for all classes of conventional cooking tops, 
standard level 1 would produce a net present value of $10 million, 
whereas there would be net present value savings for levels 2-5 of 
$3.01 billion, $1.57 billion, negative $1.62 billion, and negative 
$3.39 billion, respectively. See Technical Support Document, Table 3.6.
    Microwave ovens. A life-cycle cost is calculated for a unit meeting 
each of the candidate standard levels. For microwave ovens, life-cycle 
costs at all standard levels other than level 4 and level 5, the max 
tech level, are less than the baseline unit. Of the five candidate 
standard levels, units meeting level 2 had the lowest consumer life-
cycle cost for microwave ovens. See Technical Support Document, Table 
4.8.
    However, other than at the max tech level, consumers do not 
purchase units of the same efficiency. At each candidate standard 
level, the Department determines the average change in life-cycle costs 
by considering only those consumers who are being forced by the 
standard to move from a lower efficiency unit to one which just meets 
the standard level being considered. This is done by assuming in the 
base case a distribution of purchases of units meeting the efficiencies 
of the various standard levels. The base case distribution is based on 
the distribution of current sales as a function of efficiency. As each 
standard level is examined, the change in life-cycle cost reported is 
the average change only for affected consumers. Under this scenario, 
standard level 1 would cause reductions in life-cycle costs for the 
average affected consumer of $14.15 for microwave ovens; standard level 
2 would reduce average life-cycle costs by $14.77 and standard level 3 
by $14.12. These life-cycle cost reductions indicate that standard 
levels 1 through 3 would not cause any economic burden on the average 
consumer. Standard levels 4 and 5 would increase average life-cycle 
costs by $.03 and $20.31, respectively. See Technical Support Document, 
Table 4.16.
    The Department examined the effect of different discount rates (4, 
6, and 10 percent) on the life-cycle cost curves and generally found 
little impact. The Department did not consider higher discount rates, 
since such rates would be beyond the range of real, after-tax rates 
that consumers would likely face in financing the purchase of microwave 
ovens. Similarly, DOE did not consider different energy prices, 
including regional prices, in the life-cycle cost analysis. Since any 
standard is to be a national standard, DOE believed that national 
average energy prices were appropriate.
    The net present value analysis, a measure of the net savings to 
society, indicates that for microwave ovens, standard level 1 would 
produce a net present value of $0.74 billion to consumers. The 
corresponding net present values for levels 2-5 are $0.78 billion, 
$0.70 billion, negative $0.67 billion, and negative $2.64 billion, 
respectively. See Technical Support Document, Table 3.6.
    C. Energy savings. As indicated above, standards will result in 
significant savings of energy consumption for conventional ovens, 
conventional cooking tops and microwave ovens.
    D. Lessening of utility or performance of products. As indicated 
above, DOE established classes of products in order to assure that the 
standards analyzed would not lessen the existing utility or performance 
of conventional ovens, conventional cooking tops, and microwave ovens.
    E. Impact of lessening of competition. The determination of this 
factor must be made by the Attorney General.
     F. Need of the nation to save energy. Conventional ovens. 
Conventional ovens use electricity and gas directly. In 1987, 4.0 
percent of residential sector source electricity (or 0.42 quad) and 4.4 
percent of natural gas consumption (or 0.23 quad) were accounted for on 
a national basis by conventional ovens.
    In addition, decreasing future energy demand as a result of 
standards will decrease air pollution. See Technical Support Document, 
Appendix D of Volume A.\41\ Decreases in air pollution will occur for 
sulfur oxides (listed in equivalent weight of sulfur dioxide, or 
SO2). For all classes of conventional ovens at standard level 1, 
over the years 1996 to 2030, the total estimated SO2 reduction 
would be over 51,000 tons. During this time period, the peak annual 
reduction of SO2 emissions that are expected to be emitted by 
power plants in the United States is 0.03 percent. For standard levels 
2-5, the reductions are 92,000 tons; 202,000 tons; 239,000 tons; and 
405,000 tons, respectively. The highest peak annual reduction of these 
levels is 0.20 percent.
---------------------------------------------------------------------------

    \41\See footnote 37.
---------------------------------------------------------------------------

    Standards will also result in a decrease in nitrogen dioxide 
(NO2) emissions. For standard level 1, over the years 1996 to 
2030, the total estimated NO2 reduction would be 67,000 tons. 
During this time period, the peak annual reduction of NO2 
emissions that are expected to be emitted by power plants during that 
time in the United States is 0.04 percent. For standard levels 2-5, the 
reductions are 130,000 tons; 249,000 tons; 287,000 tons; and 451,000 
tons, respectively. The highest peak annual reduction of these levels 
is 0.24 percent.
    Another consequence of the standards will be the reduction of 
carbon dioxide (CO2) emissions. For standard level 1, over the 
years 1996 to 2030, the total estimated CO2 reduction would be 46 
million tons. During this time period, the peak annual reduction of 
CO2 emissions that are expected to be emitted by power plants in 
the United States is 0.05 percent. For standard levels 2-5, the 
reductions are 93 million tons; 165 million tons; 187 million tons; and 
280 million tons, respectively. The highest peak annual reduction of 
these levels is 0.29 percent.
    Conventional cooking tops. Conventional cooking tops use 
electricity and gas directly. In 1987, 3.7 percent of source 
electricity (or 0.39 quad) and 5.0 percent of natural gas consumption 
(or 0.26 quad) were accounted for on a national basis by conventional 
cooking tops.
    In addition, decreasing future energy demand as a result of 
standards will decrease air pollution. See Technical Support Document, 
Appendix D.\42\ Decreases in air pollution will occur for sulfur oxides 
(listed in equivalent weight of sulfur dioxide, or SO2). For all 
classes of conventional cooking tops at standard level 1, over the 
years 1996 to 2030, the total estimated SO2 reduction would be 
less than 500 tons. During this time period, the peak annual reduction 
of SO2 emissions that are expected to be emitted by power plants 
in the United States is less than 0.01 percent. For standard levels 2-
5, the reductions are 30,000 tons; 17,000 tons; 156,000 tons; and 
92,000 tons, respectively. The highest peak annual reduction of these 
levels is 0.07 percent.
---------------------------------------------------------------------------

    \42\See, footnote 37.
---------------------------------------------------------------------------

    Standards will also result in a decrease in nitrogen dioxide 
(NO2) emissions. For standard level 1, over the years 1996 to 
2030, the total estimated NO2 reduction would be 1,000 tons. 
During this time period, the peak annual reduction of NO2 
emissions that are expected to be emitted by power plants in the United 
States is less than 0.01 percent. For standard levels 2-5, the 
reductions are 151,000 tons; 151,000 tons; 255,000 tons; and 206,000 
tons, respectively The highest peak annual reduction of these levels is 
0.13 percent.
    Another consequence of the standards will be the reduction of 
carbon dioxide (CO2) emissions. For standard level 1, over the 
years 1996 to 2030, the total estimated CO2 reduction would be 1 
million tons. During this time period, the peak annual reduction of 
CO2 emissions that are expected to be emitted by power plants in 
the United States is less than 0.01 percent. For standard levels 2-5, 
the reductions are 144 million tons; 150 million tons; 193 million 
tons; and 172 million tons, respectively. The highest peak annual 
reduction of these levels is 0.20 percent.
    Microwave ovens. Microwave ovens use electricity directly. In 1987, 
1.5 percent of source electricity (or 0.16 quad) were accounted for on 
a national basis by microwave ovens.
    In addition, decreasing future energy demand as a result of 
standards will decrease air pollution. See Technical Support Document, 
Appendix D.\43\ Decreases in air pollution will occur for sulfur oxides 
(listed in equivalent weight of sulfur dioxide, or SO2). For 
microwave ovens at standard level 1, over the years 1996 to 2030, the 
total estimated SO2 reduction would be over 118,000 tons. During 
this time period, the peak annual reduction of SO2 emissions that 
are expected to be emitted by power plants in the United States is 0.09 
percent. For standard levels 2-5, the reductions are 138,000 tons; 
156,000 tons; 178,000 tons; and 190,000 tons, respectively. The highest 
peak annual reduction of these levels is 0.12 percent.
---------------------------------------------------------------------------

    \43\See, footnote 37.
---------------------------------------------------------------------------

    Standards will also result in a decrease in nitrogen dioxide 
(NO2) emissions. For standard level 1, over the years 1996 to 
2030, the total estimated NO2 reduction would be 94,000 tons. 
During this time period, the peak annual reduction of NO2 
emissions that are expected to be emitted by power plants in the United 
States is 0.09 percent. For standard levels 2-5, the reductions are 
112,000 tons; 128,000 tons; 147,000 tons; and 158,000 tons, 
respectively. The highest peak annual reduction of these levels is 0.12 
percent.
    Another consequence of the standards will be the reduction of 
carbon dioxide (CO2) emissions. For standard level 1, over the 
years 1996 to 2030, the total estimated CO2 reduction would be 39 
million tons. During this time period, the peak annual reduction of 
CO2 emissions that are expected to be emitted by powerplants in 
the United States is 0.09 percent. For standard levels 2-5, the 
reductions are 48 million tons; 56 million tons; 65 million tons; and 
71 million tons, respectively. The highest peak annual reduction of 
these levels is 0.12 percent.
    Decreasing future electricity demand is also likely to result in 
reductions in the demand for oil used in electricity generation. 
Because virtually all sources of oil, on the margin, are foreign, any 
reductions in oil demand are likely to be reflected in reductions in 
oil imports. For standard level 1, the estimated decrease in oil 
imports is 12.74 million barrels over the years 1996 to 2030. For 
standard levels 2-5, the reductions in oil imports are estimated to be 
21.33, 32.68, 51.88, and 63.07 million barrels, respectively.
5. Conclusion
    Conventional ovens. Section 325(l)(2)(A) of the Act specifies that 
the Department must consider, for amended standards, those standards 
that ``achieve the maximum improvement in energy efficiency which the 
Secretary determines is technologically feasible and economically 
justified.'' Accordingly, the Department first considered the max tech 
level of efficiency, i.e., standard level 5 for amended conventional 
oven standards.
    Of the standard levels analyzed, level 5 will save the most energy 
(3.88 quads between 1996 and 2030). In order to meet this standard, the 
Department assumes that all conventional ovens will not have an oven 
door window and will incorporate improved door seals, reduced venting, 
reflective surfaces, increased and improved insulation, convection and 
an oven separator, and reduced thermal mass and conduction losses. 
Additionally, electric ovens would be biradiant, and gas ovens would 
incorporate an electronic ignition. However, the payback at this 
standard level of 18.9 years and 15.7 years for the gas and electric 
representative classes is roughly equal to the 19-year product life and 
ranges up to 55 years for other classes. At this standard level, all 
classes have increased life-cycle costs.
    The Department therefore concludes that the burdens of standard 
level 5 for conventional ovens outweigh the benefits, and rejects the 
standard level.
    After carefully considering the analysis, the Department is 
amending the National Appliance Energy Conservation Act-imposed 1990 
standard for the conventional oven portion of kitchen ranges and ovens 
with standard level 4 for conventional ovens. The Department concludes 
that standard level 4 for conventional ovens saves a significant amount 
of energy and is technologically feasible and economically justified.
    There would be significant energy savings at this level of 
efficiency. During the period 1996-2030, these savings are calculated 
to be 2.69 quads of primary energy. In addition, the standard could 
have a positive effect on the environment by reducing the emissions of 
NO2 and SO2 by 287,000 tons and 239,000 tons, respectively, 
or by as much as 0.15 and 0.12 percent, respectively, by the year 2030. 
Furthermore, the standard will reduce emissions of CO2 by 187 
million tons, or 0.20 percent, over the forecast period.
    The technologies that are necessary to meet this standard are 
presently available. The Department finds the level to be economically 
justified. The consumer payback of this standard level is 7.5 years and 
4.9 years for the representative gas and electric classes, 
respectively, with a payback no higher than 10.4 years, or roughly half 
of the 19-year product life, for any class. This standard has the 
lowest life-cycle cost for the electric representative class and is 
expected to result in a reduction in life-cycle cost of approximately 
$53 for that class. Life-cycle cost savings are $26 for the gas 
representative class and are positive for all other classes. 
Additionally, the standard is expected to have almost no impact on the 
prototypical manufacturer's return on equity of 8.6 percent. Since this 
standard does not involve substantial redesign or retooling, the 
Department expects that it will not have negative impacts on smaller 
competitors.
    Conventional cooking tops. Section 325(l)(2)(A) of the Act 
specifies that the Department must consider, for amended standards, 
those standards that ``achieve the maximum improvement in energy 
efficiency which the Secretary determines is technologically feasible 
and economically justified.'' Accordingly, the Department first 
considered the max tech level of efficiency, i.e., standard level 5 for 
amended conventional cooking top standards.
     Of the standard levels analyzed, level 5 will save the most energy 
(3.04 quads between 1996 and 2030). In order to meet this standard, the 
Department assumes that all representative classes of conventional 
cooking tops will have reflective surfaces. Additionally, electric-coil 
cooking tops would have improved element contact, and gas cooking tops 
would incorporate reduced burner excess air, electronic ignition and 
sealed burners. It should also be noted that the design options for the 
representative classes are the same for levels 5, 4 and 3,--i.e., max 
tech,-- with the differences in those levels having to do with design 
options for electric smooth element cooking tops. At level 5, the max 
tech level for all classes, electric smooth element cooking tops 
require the use of induction elements. However, the payback at this 
standard level for electric smooth element cooking tops is 193 years, 
with a $550 increase in life-cycle costs.
     The Department therefore concludes that the burdens of standard 
level 5 for conventional cooking tops outweigh the benefits, and 
rejects the standard level.
    The next most stringent standard level is standard level 4. This 
standard level is projected to save 2.85 quads of energy. As discussed 
above, the representative classes are still at their max tech level, 
while electric smooth element cooking tops require the use of halogen 
elements. The payback at this standard level for electric smooth 
element cooking tops is 890 years, with a $343 increase in life-cycle 
costs.
    The Department, therefore concludes that the burdens of standard 
level 4 for conventional cooking tops outweigh the benefits, and 
rejects the standard level.
    The next most stringent standard level is standard level 3. This 
standard level is projected to save 2.68 quads of energy. As discussed 
above, the representative classes are still at their max tech level, 
while electric smooth element cooking tops are at the baseline. The 
payback at this standard level for the representative gas and electric 
classes are 10.1 and 9.8 years, respectively, which slightly exceeds 
half of the product life. Additionally, the Department is concerned 
about the longevity of the design option, reflective surfaces, required 
to meet this standard level.
    The Department therefore concludes that the questionable technology 
and economic burdens of standard level 3 for conventional cooking tops 
outweigh the benefits, and rejects the standard level.
    After carefully considering the analysis, the Department is 
amending the National Appliance Energy Conservation Act-imposed 1990 
standard for the conventional cooking top portion of kitchen ranges and 
ovens with standard level 2 for conventional cooking tops. The 
Department concludes that standard level 2 for conventional cooking 
tops saves a significant amount of energy and is technologically 
feasible and economically justified.
    There would be significant energy savings at this level of 
efficiency. During the period 1996-2030, these savings are calculated 
to be 2.54 quads of primary energy. In addition, the standard could 
have a positive effect on the environment by reducing the emissions of 
NO2 and SO2 by 151,000 tons and 30,000 tons, respectively, or 
by as much as 0.09 and 0.02 percent, respectively, by the year 2030. 
Furthermore, the standard will reduce emissions of CO2 by 144 
million tons, or 0.15 percent, over the forecast period.
    The technologies that are necessary to meet this standard are 
presently available. The Department finds the level to be economically 
justified. The consumer payback of this standard level is 7.0 years and 
5.2 years for the representative gas and electric classes, 
respectively, or roughly one-third of the 19-year product life. This 
standard lowers the life-cycle cost for the representative gas and 
electric classes by $66 and $6, respectively. Additionally, the 
standard is expected to have only a slight reduction of the 
prototypical manufacturer's return on equity of 8.6 percent. Since this 
standard does not involve substantial redesign or retooling, the 
Department expects that it will not have negative impacts on smaller 
competitors.
    Microwave ovens. Section 325(l)(2)(A) of the Act specifies that the 
Department must consider, for amended standards, those standards that 
``achieve the maximum improvement in energy efficiency which the 
Secretary determines is technologically feasible and economically 
justified.'' Accordingly, the Department first considered the max tech 
level of efficiency, i.e., standard level 5 for amended microwave oven 
standards.
     Of the standard levels analyzed, level 5 will save the most energy 
(0.84 quad between 1996 and 2030). In order to meet this standard, the 
Department assumes that all microwave ovens will have more efficient 
power supplies, fans and magnetrons; modified wave guides and 
reflective surfaces. However, the payback at this standard level of 
13.0 years exceeds the 10-year product life, and this level produces 
increased life-cycle costs.
    The Department therefore concludes that the burdens of standard 
level 5 for microwave ovens outweigh the benefits, and rejects the 
standard level.
    The next most stringent standard level is standard level 4. This 
standard level is projected to save 0.77 quad of energy. However, the 
payback at this standard level of 7.4 years is nearly three quarters of 
the product life and produces an increase in life-cycle costs.
    The Department therefore concludes that the burdens of standard 
level 4 for microwave ovens outweigh the benefits, and rejects the 
standard level.
    After carefully considering the analysis, the Department is 
amending the National Appliance Energy Conservation Act-imposed 1990 
standard for the microwave oven portion of kitchen ranges and ovens 
with standard level 3 for microwave ovens. The Department concludes 
that standard level 3 for microwave ovens saves a significant amount of 
energy and is technologically feasible and economically justified.
    There would be significant energy savings at this level of 
efficiency. During the period 1996-2030, these savings are calculated 
to be 0.67 quad of primary energy. In addition, the standard could have 
a positive effect on the environment by reducing the emissions of 
NO2 and SO2 by 128,000 tons and 156,000 tons, respectively, 
or by as much as 0.10 percent each by the year 2030. Furthermore, the 
standard will reduce emissions of CO2 by 56 million tons, or 0.10 
percent, over the forecast period.
    The technologies that are necessary to meet this standard are 
presently available. The Department finds the level to be economically 
justified. The consumer payback of this standard level is 2.9 years, 
which meets the rebuttable presumption test of economic justification. 
This standard is close to the lowest life-cycle cost for microwave 
ovens and is expected to result in a reduction in life-cycle cost of 
approximately $14. Additionally, the standard is expected to have 
almost no impact on the prototypical manufacturer's return on equity of 
8.6 percent. Since this standard does not involve substantial redesign 
or retooling, the Department expects that it will not have negative 
impacts on smaller competitors.

f. Pool Heaters

 1. Efficiency Levels Analyzed.
    The Department examined a range of standard levels for pool 
heaters. In reviewing the design options necessary to achieve those 
standard levels, the Department determined that a new energy descriptor 
was needed to adequately address some of the design options in the 
analysis because the current energy descriptor, Thermal Efficiency, 
does not include pilot light usage or electrical consumption. For 
example, to consider electronic ignition, the savings in pilot light 
gas consumption would have to be accounted for in the descriptor. 
Furthermore, other design options, for instance, fan-assisted 
combustion, improve thermal efficiency but, at the same time, increase 
overall electrical consumption which, unless accounted for in the 
energy descriptor, could lead to higher Thermal Efficiency with little 
or no net energy savings. Because of the above, the Department 
conducted the analysis, and is proposing the standards, in terms of a 
new energy descriptor, annual efficiency. The test procedure to 
determine this energy descriptor is contained in the previously 
mentioned Notice of Proposed Rulemaking. Table 4-13 presents the four 
efficiency levels that had been selected for analysis for pool heaters. 
Level 4 corresponds to the highest efficiency level, max tech, 
considered in the engineering analysis.

Table 4-13.--Standard Levels Analyzed for Pool Heaters Annual Efficiency
                              [In percent]                              
------------------------------------------------------------------------
                                      Standard level                    
  Product class   ------------------------------------------------------
                    Baseline      1          2          3          4    
------------------------------------------------------------------------
Gas Fired........       66.8       78.0       82.2       90.7       95.7
------------------------------------------------------------------------

    The Department considered one class of pool heaters, gas-fired pool 
heaters. For gas-fired pool heaters, trial standard level 1 
accomplishes the above efficiency improvement from the baseline by 
incorporating an electronic ignition, level 2 assumes heat exchanger 
efficiency at the noncondensing limit, level 3 assumes condensing flue 
gases with a fan-assisted combustion system, and level 4 assumes 
condensing flue gases utilizing pulse combustion.
2. Payback Period
    Table 4-14 presents the payback period for the efficiency levels 
analyzed. Standard level 1 satisfies the rebuttable presumption test, 
i.e., the additional price of purchasing a product will be less than 
three times the value of the energy savings that the consumer will 
receive during the first year. 

     Table 4-14.--Payback Periods of Design Options for Pool Heaters    
                               [In years]                               
------------------------------------------------------------------------
                                                                 Payback
                        Standard level                           period 
------------------------------------------------------------------------
1.............................................................       2.7
2.............................................................       5.0
3.............................................................      17.2
4.............................................................     27.0 
------------------------------------------------------------------------

3. Significance of Energy Savings
    To estimate the energy savings by the year 2030 due to revised 
standards, the energy consumption of new pool heaters under the base 
case is compared to the energy consumption of those sold under the 
candidate standard levels. For the candidate energy conservation 
standards, the Lawrence Berkeley Laboratory-Residential Energy Model 
projects that over the period 1996-2030, the following energy savings 
could result for each:

Level 1--0.07 Quad
Level 2--0.23 Quad
Level 3--0.58 Quad
Level 4--0.78 Quad

    The Department finds that each of the increased standards levels 
considered above would result in a significant conservation of energy.
4. Economic Justification
    A. Economic impact on manufacturers and consumers The per-unit 
increased cost to manufacturers to meet the level 1 efficiency is 
$39.39; to meet levels 2-4, the manufacturers' incremental cost 
increases are $95.05, $405.68, and $760.68, respectively. See Technical 
Support Document, Table 1.3, ``Manufacturers Cost for Gas-Fired Pool 
and Spa Heaters.''
    At those levels of efficiency, the incremental consumer price 
increases are $87.13, $213.97, $1,025.41, and $1,839.60 for standard 
levels 1-4, respectively. See Technical Support Document, Table 4.1.
    The per-unit reduction in annual cost of operation (energy expense) 
at level 1 is $32.77; standard level 2 would reduce energy expenses by 
$42.51; standard level 3 by $59.53; and standard level 4 by $68.16. See 
Technical Support Document, Table 4.1.
    The Lawrence Berkeley Laboratory-Manufacturer Impact Model results 
for pool heaters show that revised standards would result in increases 
in a prototypical manufacturer's short-run return on equity from the 
17.9 percent in the base case. Standard levels 1 through 4 are 
projected to produce short- run return on equity's of 18.0 percent, 
18.4 percent, 19.7 percent and 19.9 percent, respectively. Revised 
standards have even greater increases in long- run return on equity. 
Standard levels 1 through 4 are projected to produce long-run return on 
equity's of 18.7 percent, 20.1 percent, 26.0 percent and 29.9 percent, 
respectively. See Technical Support Document, Tables 5.1 and 5.2.
    Most financial data of the type needed to characterize the 
prototypical manufacturer are generally not available because most real 
firms are subsidiaries or divisions of larger parent companies. Hence, 
DOE assumes that the prototypical firm has largely the same financial 
characteristics (e.g. debt-equity ratio, interest rate on debt, etc.) 
as parent firms. Financial data for the parent firms are based on 
publicly available sources such as Securities and Exchange Commission 
10K reports and company annual reports.
    B. Life-cycle cost and net present value. A life-cycle cost is 
calculated for a unit meeting each of the candidate standard levels. 
For pool heaters, life-cycle costs at all standard levels other than 
level 3 and level 4, the max tech level, are less than the baseline 
unit. Of the four candidate standard levels, a unit meeting level 1 has 
the lowest consumer life-cycle cost. See Technical Support Document, 
Table 4.2.
    However, other than at the max tech level, consumers do not 
purchase units of the same efficiency. At each candidate standard 
level, the Department determines the average change in life-cycle costs 
by considering only those consumers who are being forced by the 
standard to move from a lower efficiency unit to one which just meets 
the standard level being considered. This is done by assuming in the 
base case a distribution of purchases of units meeting the efficiencies 
of the various standard levels. The base case distribution is based on 
the distribution of current sales as a function of efficiency. As each 
standard level is examined, the change in life-cycle cost reported is 
the average change only for affected consumers. Under this scenario, 
standard level 1 would cause reductions in life-cycle costs for the 
average affected consumer of $231.13 and standard level 2 would reduce 
average life-cycle costs by $198.94. These life-cycle cost reductions 
indicate that standard levels 1 and 2 would not cause any economic 
burden on the average consumer. Standard level 3 would increase average 
life-cycle costs by $447.19, and standard level 4 would increase 
average life-cycle costs by $1,177.57. See Technical Support Document, 
Table 4.2.
    While DOE examined the effect of different discount rates (4, 6, 
and 10 percent) on the life-cycle cost curves and generally found 
little impact, the Department did not consider higher discount rates, 
since such rates would be beyond the range of real, after-tax rates 
that consumers would likely face in financing the purchase of pool 
heaters. Similarly, DOE did not consider different energy prices, 
including regional prices, in the life-cycle cost analysis. Since any 
standard is to be a national standard, DOE believed that national 
average energy prices were appropriate.
    The net present value analysis, a measure of the net savings to 
society, indicates that standard level 1 would produce a net present 
value of $0.14 billion to consumers. The corresponding net present 
values for levels 2-4 are $0.13 billion, negative $1.09 billion, and 
negative $2.44 billion, respectively. See Technical Support Document, 
Table 3.6.
    C. Energy savings. As indicated above, standards will result in 
significant savings of electricity consumption for pool heaters.
    D. Lessening of utility or performance of products. As indicated 
above, DOE established classes of products in order to assure that the 
standards analyzed would not lessen the existing utility or performance 
of pool heaters.
    E. Impact of lessening of competition. The determination of this 
factor must be made by the Attorney General.
    F. Need of the nation to save energy. In 1987, 0.8 percent of 
residential sector natural gas consumption (or 0.04 quad) was accounted 
for on a national basis by pool heaters.
    In addition, decreasing future energy demand as a result of 
standards will decrease air pollution. See Technical Support Document, 
Appendix D of Volume A.\44\ Decreases in air pollution will occur for 
nitrogen dioxide (NO2) emissions. For standard level 1, over the 
years 1996 to 2030, the total estimated NO2 reduction would be 
4,000 tons. During this time period, the peak annual reduction of 
NO2 emissions that are expected to be emitted by power plants in 
the United States is less than 0.01 percent. For standard levels 2-4 
the reductions are 12,000 tons; 31,000 tons and 41,000 tons, 
respectively. The highest peak annual reduction of these levels is 0.03 
percent.
---------------------------------------------------------------------------

    \44\See, footnote 37.
---------------------------------------------------------------------------

    Another consequence of the standards will be the reduction of 
carbon dioxide (CO2) emissions. For standard level 1, over the 
years 1996 to 2030, the total estimated CO2 reduction would be 4 
million tons. During this time period, the peak annual reduction of 
CO2 emissions that are expected to be emitted by power plants in 
the United States is 0.01 percent. For standard levels 2-4 the 
reductions are 12 million tons; 32 million tons and 43 million tons, 
respectively. The highest peak annual reduction of these levels is 0.04 
percent.
    Decreasing future electricity demand is also likely to result in 
reductions in the demand for oil used in electricity generation. 
Because virtually all sources of oil, on the margin, are foreign, any 
reductions in oil demand are likely to be reflected in reductions in 
oil imports. Standard for pool heaters, standard levels 1-4, are not 
expected to affect oil consumption.
    5. Conclusion. Section 325(l)(2)(A) of the Act specifies that the 
Department must consider, for amended standards, those standards that 
``achieve the maximum improvement in energy efficiency which the 
Secretary determines is technologically feasible and economically 
justified.'' Accordingly, the Department first considered the max tech 
level of efficiency, i.e., standard level 4 for amended pool heater 
standards.
    Of the standard levels analyzed, level 4 will save the most energy 
(0.78 quad between 1996 and 2030). In order to meet this standard, the 
Department assumes that all pool heaters will be condensing pulse 
combustion pool heaters. However, the payback at this standard level of 
27.0 years exceeds the 15-year life of the product and causes life-
cycle cost increases of $1,178.
    The Department therefore concludes that the burdens of standard 
level 4 for pool heaters outweigh the benefits, and rejects the 
standard level.
    The next most stringent standard level is standard level 3. This 
standard level is projected to save 0.58 quads of energy. However, the 
payback at this standard level of 17.2 years also exceeds the product's 
life and produces an increase in life-cycle costs.
    The Department therefore concludes that the burdens of standard 
level 3 for pool heaters outweigh the benefits, and rejects the 
standard level.
    After carefully considering the analysis, the Department is 
amending the National Appliance Energy Conservation Act-imposed 1990 
standard for pool heaters with standard level 2 for pool heaters. The 
Department concludes that standard level 2 for pool heaters saves a 
significant amount of energy and is technologically feasible and 
economically justified.
    There would be significant energy savings at this level of 
efficiency. During the period 1996--2030, these savings are calculated 
to be 0.23 quads of primary energy. In addition, the standard could 
have a positive effect on the environment by reducing the emissions of 
NO2 by as much as 12,000 tons, or 0.01 percent by the year 2030. 
Furthermore, the standard will reduce emissions of CO2 by 12 
million tons, or 0.02 percent, over the forecast period.
    The technologies that are necessary to meet this standard are 
presently available. The Department finds the level to be economically 
justified. The consumer payback of this standard level is 5.0 years or 
one-third of the product life. This standard is expected to result in a 
reduction in life- cycle cost of approximately $199. Additionally, the 
standard is expected to increase the prototypical manufacturer's return 
on equity from 17.9 percent in the base case to 18.4 percent in the 
short run and to 20.1 percent in the long run. Since this standard does 
not involve substantial redesign or retooling, the Department expects 
that it will not have negative impacts on smaller competitors.

g. Fluorescent Lamp Ballasts

1. Efficiency Levels Analyzed
    The Department examined a range of standard levels for fluorescent 
lamp ballasts. Table 4-15 presents the three efficiency levels selected 
for analysis for the 10 classes of fluorescent lamp ballasts. Level 3 
corresponds to the highest efficiency level, max tech, considered in 
the engineering analysis.

   Table 4-15.--Standard Levels Analyzed for Fluorescent Lamp Ballasts  
------------------------------------------------------------------------
                                            Standard level              
       Product class         -------------------------------------------
                              Baseline       1          2          3    
------------------------------------------------------------------------
One F40 lamp................       2.02       2.11       2.50       2.50
Two F40 lamps...............       1.09       1.15       1.28       1.28
Three F40 lamps.............       0.71       0.74       0.87       0.87
Four F40 lamps..............       0.55       0.57       0.67       0.67
Two F96 lamps...............       0.60       0.72       0.72       0.72
Two F96H0 lamps.............       0.40       0.50       0.50       0.50
One F32T8 lamp..............       2.57       2.71       2.97       3.17
Two F32T8 lamps.............       1.28       1.36       1.48       1.58
Three F32T8 lamps...........       0.85       0.90       1.00       1.06
Four F32T8 lamps............       0.64       0.68       0.72       0.76
------------------------------------------------------------------------

    Rather than presenting the results for all classes of fluorescent 
lamp ballasts in today's notice, the Department selected a class of 
fluorescent lamp ballasts as being representative, or typical, of the 
product, and is presenting the results only for that class. The results 
for the other classes can be found in the Technical Support Document in 
the same sections as those referenced for the representative class. The 
representative class for fluorescent lamp ballasts is ballasts for two 
F40 lamps, which is the most prevalent class. For this representative 
class, trial standard level 1 accomplishes the above efficiency 
improvement from the baseline by assuming energy-efficient magnetic 
ballasts with a heater cutout; levels 2 and 3 correspond to 
efficiencies achieved by rapid start electronic ballasts. Similar 
design options are used to achieve the above efficiencies for the other 
classes, except that for the F-32 classes level 3 corresponds to 
efficiencies achieved by instant start electronic ballasts.
2. Payback Period
    Table 4-16 presents the payback period for the efficiency levels 
analyzed for the representative class of fluorescent lamp ballast. For 
this representative class, standard levels 2 and 3 satisfy the 
rebuttable presumption test, i.e., the additional price of purchasing a 
product will be less than three times the value of the energy savings 
that the consumer will receive during the first year. Payback for all 
classes of fluorescent lamp ballasts may be found in Tables 4.11d-4.20d 
of the Technical Support Document. 

 Table 4-16.--Payback Periods of Design Options for Representative Class
                      of Fluorescent Lamp Ballasts                      
                               [In years]                               
------------------------------------------------------------------------
                                                                Payback 
                       Standard level                           period  
------------------------------------------------------------------------
1............................................................        4.4
2............................................................        2.4
3............................................................       2.4 
------------------------------------------------------------------------

3. Significance of Energy Savings
    To estimate the base case energy savings by the year 2030 due to 
revised standards, the energy consumption of new fluorescent lamp 
ballasts under the base case is compared to the energy consumption of 
those sold under the candidate standard levels. For the candidate 
energy conservation standards, Commercial Energy End-Use Model projects 
over the period 1996-2030, the following energy savings could result 
for each:

Level 1--13.7 Quads
Level 2--15.9 Quads
Level 3--17.0 Quads

    The Department finds that each of the increased standards levels 
considered above would result in a significant conservation of energy.
4. Economic Justification
    A. Economic impact on manufacturers and consumers. The per-unit 
increased cost to manufacturers to meet the level 1 efficiency for the 
representative class is $2.00; to meet levels 2 and 3, the 
manufacturers' cost increase is $7.00. See Technical Support Document, 
Table 1.6.
    At those levels of efficiency, the consumer price increases are 
$4.91 and $8.95 for standard levels 1 and 2/3, respectively. See 
Technical Support Document, Table 4.2.
    The per-unit reduction in annual cost of operation (energy expense) 
at level 1 is $1.11 for the representative class; standard levels 2 and 
3 would reduce energy expenses by $3.62. See Technical Support 
Document, Table 4.12a.
    The Lawrence Berkeley Laboratory-Manufacturer Impact Model results 
for fluorescent lamp ballasts show that revised standards would result 
in increases in a prototypical manufacturer's short-run return on 
equity from the 15.5 percent in the base case. Standard levels 1 
through 3 are projected to produce short-run return on equity's of 23.7 
percent, 24.5 percent and 24.7 percent, respectively. Revised standards 
are projected to slightly increase long-run return on equity. Standard 
levels 1 through 3 are projected to produce long-run return on equity's 
of 16.0 percent, 16.1 percent and 16.1 percent, respectively. See 
Technical Support Document, Tables 5.1 and 5.2.
    Most financial data of the type needed to characterize the 
prototypical manufacturer are generally not available because most real 
firms are subsidiaries or divisions of larger parent companies. Hence, 
DOE assumes that the prototypical firm has largely the same financial 
characteristics (e.g. debt-equity ratio, interest rate on debt, etc.) 
as parent firms. Financial data for the parent firms are based on 
publicly available sources such as Securities and Exchange Commission 
10K reports and company annual reports.
    B. Life-cycle cost and net present value. A life-cycle cost is 
calculated for a unit meeting each of the candidate standard levels. 
For the representative class, life-cycle costs at all standard levels 
are less than the baseline unit. Of the three candidate standard 
levels, a unit meeting levels 2 or 3 had the lowest consumer life-cycle 
costs. See Technical Support Document, Table 4.2.
    However, other than at the max tech level, consumers do not 
purchase units of the same efficiency. At each candidate standard 
level, the Department determines the average change in life-cycle costs 
by considering only those consumers who are being forced by the 
standard to move from a lower efficiency unit to one which just meets 
the standard level being considered. This is done by assuming in the 
base case a distribution of purchases of units meeting the efficiencies 
of the various standard levels. The base case distribution is based on 
the distribution of current sales as a function of efficiency. As each 
standard level is examined, the change in life-cycle cost reported is 
the average change only for affected consumers. Under this scenario, 
standard level 1 would cause reductions in life-cycle costs for the 
average consumer of $7.48 for the representative class, and standard 
levels 2 and 3 would reduce average life-cycle costs by $30.23. These 
life-cycle cost reductions indicate that no standard level would cause 
any economic burden on the average consumer. See Technical Support 
Document, Table 4.12d.
    While DOE examined the effect of different discount rates (2, 4, 
and 10 percent) on the life-cycle cost curves and generally found 
little impact, the Department did not consider higher discount rates, 
since such rates would be beyond the range of real, after-tax rates 
that consumers would likely face in financing the purchase of 
fluorescent lamp ballasts. Similarly, DOE did not consider different 
energy prices, including regional prices, in the life-cycle cost 
analysis. Since any standard is to be a national standard, DOE believed 
that national average energy prices were appropriate.
    The net present value analysis, a measure of the net savings to 
society, indicates that standard level 1 would produce a net present 
value of $22.3 billion to consumers. The corresponding net present 
values for levels 2 and 3 are $25.4 billion and $27.3 billion, 
respectively. See Technical Support Document, Table 3.6.
    C. Energy savings. As indicated above, standards will result in 
significant savings of electricity consumption for fluorescent lamp 
ballasts.
    D. Lessening of utility or performance of products. As indicated 
above, DOE established classes of products in order to assure that the 
standards analyzed would not lessen the existing utility or performance 
of fluorescent lamp ballasts.
    E. Impact of lessening of competition. The determination of this 
factor must be made by the Attorney General.
    F. Need of the Nation to save energy. Fluorescent lamp ballasts use 
electricity directly. In 1987, 27 percent of commercial sector source 
electricity (or 2.17 quads) was accounted for on a national basis by 
fluorescent lamp ballasts.
    In addition, decreasing future energy demand as a result of 
standards will decrease air pollution. See Technical Support Document, 
Appendix D of Volume A.\45\ Decreases in air pollution will occur for 
sulfur oxides (listed in equivalent weight of sulfur dioxide, or 
SO2). For fluorescent lamp ballasts at standard level 1, over the 
years 1996 to 2030, the total estimated SO2 reduction would be 
over 2,417,000 tons. During this time period, the peak annual reduction 
of SO2 emissions that are expected to be emitted by power plants 
in the United States is 1.20 percent. For standard levels 2 and 3, the 
reductions are 2,797,000 tons and 2,986,000 tons, respectively. The 
highest peak annual reduction of these levels is 1.47 percent.
---------------------------------------------------------------------------

    \45\See footnote 37.
---------------------------------------------------------------------------

    Standards will also result in a decrease in nitrogen dioxide 
(NO2) emissions. For standard level 1, over the years 1996 to 
2030, the total estimated NO2 reduction would be 2,218,000 tons. 
During this time period, the peak annual reduction of NO2 
emissions that are expected to be emitted by power plants in the United 
States is 1.19 percent. For standard levels 2 and 3, the reductions are 
2,566,000 tons and 2,739,000 tons, respectively. The highest peak 
annual reduction of these levels is 1.47 percent.
    Another consequence of the standards will be the reduction of 
carbon dioxide (CO2) emissions. For standard level 1, over the 
years 1996 to 2030, the total estimated CO2 reduction would be 
1,174 million tons. During this time period, the peak annual reduction 
of CO2 emissions that are expected to be emitted by power plants 
in the United States are 1.17 percent. For standard levels 2 and 3, the 
reductions are 1,358 million tons and 1,450 million tons, respectively. 
The highest peak annual reduction of these levels is 1.44 percent.
    Decreasing future electricity demand is also likely to result in 
reductions in the demand for oil used in electricity generation. 
Because virtually all sources of oil, on the margin, are foreign, any 
reductions in oil demand are likely to be reflected in reductions in 
oil imports. For standard level 1, the estimated decrease in oil 
imports is 230.41 million barrels over the years 1996 to 2030. For 
standard levels 2 and 3, the reductions in oil imports are estimated to 
be 266.97 and 285.05 million barrels, respectively.
5. Conclusion
    Section 325(l)(2)(A) of the Act specifies that the Department must 
consider, for amended standards, those standards that ``achieve the 
maximum improvement in energy efficiency which the Secretary determines 
is technologically feasible and economically justified.'' Accordingly, 
the Department first considered the max tech level of efficiency, i.e., 
standard level 3 for amended fluorescent lamp ballast standards.
    Of the standard levels analyzed, level 3 will save the most energy 
(17.0 quads between 1996 and 2030). In order to meet this standard, the 
Department assumes that all fluorescent lamp ballasts will be 
electronic rapid or instant start.
    After carefully considering the analysis, the Department is 
amending the National Appliance Energy Conservation Act-1988 imposed 
1990 standard for fluorescent lamp ballasts with standard level 3 for 
fluorescent lamp ballasts. The Department concludes that standard level 
3 for fluorescent lamp ballasts saves a significant amount of energy 
and is technologically feasible and economically justified.
    There would be significant energy savings at this level of 
efficiency. During the period 1996-2025, these savings are calculated 
to be 17.0 quads of primary energy. In addition, the standard could 
have a positive effect on the environment by reducing the emissions of 
NO2 and SO2 by 2,739,000 tons and 2,986,000 tons, 
respectively, or by as much as 1.47 percent each by the year 2030. 
Furthermore, the standard will reduce emissions of CO2 by 1,450 
million tons, or 1.44 percent, over the forecast period.
    The technologies that are necessary to meet this standard are 
presently available. The Department finds the level to be economically 
justified. The consumer payback of this standard level is 2.4 years for 
the representative class and no more than 5.3 years for any class. This 
standard has the lowest life-cycle cost for all classes and is expected 
to result in a reduction in life-cycle cost of approximately $30 for 
the representative class. Additionally, the standard is expected to 
increase both the short- and long-run prototypical manufacturer's 
return on equity of 15.5 percent. Since this standard does not involve 
substantial redesign or retooling, the Department expects that it will 
not have negative impacts on smaller competitors.

h. Television Sets

1. Efficiency Levels Analyzed
    The Department examined a range of standard levels for color 
television sets. Table 4-17 presents the efficiency levels that have 
been selected for analysis. Level 3 corresponds to the highest 
efficiency level, max tech, considered in the engineering analysis. For 
level 3, the annual energy use in kWh per year can be expressed as 
E=20.5+6.1D, where D equals the screen size in inches. 

                            Table 4-17.--Standard Levels Analyzed for Television Sets                           
                                               [Annual energy use]                                              
----------------------------------------------------------------------------------------------------------------
                                                                           Standard levels--KWH/YR              
                       Product class                         ---------------------------------------------------
                                                               Baseline         1            2            3     
----------------------------------------------------------------------------------------------------------------
19''/20'' color TV sets.....................................          205          184          171        138.5
----------------------------------------------------------------------------------------------------------------

    Trial standard level 1 accomplishes the above efficiency 
improvement from the baseline by reducing standby power usage to 2 
watts; level 2 corresponds to an efficiency achieved by reducing 
standby power to 2 watts and by reducing the white and black screen 
power each by 6 watts; level 3 corresponds to an efficiency achieved by 
reducing the standby power to two watts, white screen power to 73 watts 
and black screen power to 41 watts.
2. Payback Period
    Table 4-18 presents the payback period for the efficiency levels 
analyzed for 19''/20'' color television sets. Standard levels 1 and 2 
satisfy the rebuttable presumption test, i.e., the additional price of 
purchasing a product will be less than three times the value of the 
energy savings that the consumer will receive during the first year. 

   Table 4-18.--Payback Periods of Design Options for Television Sets   
                               [In years]                               
------------------------------------------------------------------------
                                                                 Payback
                        Standard level                           period 
------------------------------------------------------------------------
1.............................................................       2.1
2.............................................................       2.2
3.............................................................       3.5
------------------------------------------------------------------------

3. Significance of Energy Savings.
    To estimate the energy savings by the year 2030 due to revised 
standards, the energy consumption of new television sets under the base 
case is compared to the energy consumption of those sold under the 
candidate standard levels. For the candidate energy conservation 
standards, the Lawrence Berkeley Laboratory-Residential Energy Model 
projects that over the period 1996-2030, the following energy savings 
would result for each:

Level 1--0.52 Quad
Level 2--1.28 Quads
Level 3--3.13 Quads

    The Department finds that each of the increased standards levels 
considered above would result in a significant conservation of energy.
4. Economic Justification
    A. Economic impact on manufacturers and consumers. The per-unit 
increased cost to manufacturers to meet the level 1 efficiency is 
$2.15; to meet levels 2 and 3 the manufacturers' cost increases are 
$3.65 and $10.25, respectively. See Technical Support Document, Table 
1.4.
    At those levels of efficiency, the incremental consumer price 
increases are $3.76, $6.39 and $19.37 for standard levels 1-3, 
respectively. See Technical Support Document, Table 4.1.
    The per-unit reduction in annual cost of operation (energy expense) 
at level 1 is $1.81, standard level 2 would reduce energy expenses by 
$2.95 and standard level 3 by $5.71. See Technical Support Document, 
Table 4.1.
    The Lawrence Berkeley Laboratory-Manufacturer Impact Model results 
for television sets show that the prototypical manufacturer has a 
negative return on equity of 1.9 percent in the absence of standards 
and that standards cause slight but further reductions in both short- 
and long-run return on equity. Standard levels 1 through 3 are 
projected to produce negative short-run return on equitys of 2.0 
percent, 2.0 percent and 3.3 percent, respectively. Long-run return on 
equitys are projected to be negative 1.9 percent, 2.0 percent and 2.2 
percent, respectively. See Technical Support Document, Tables 5.1 and 
5.2.
    Most financial data of the type needed to characterize the 
prototypical manufacturer are generally not available because most real 
firms are subsidiaries or divisions of larger parent companies. Hence, 
DOE assumes that the prototypical firm has largely the same financial 
characteristics (e.g. debt-equity ratio, interest rate on debt, etc.) 
as parent firms. Financial data for the parent firms are based on 
publicly available sources such as Securities and Exchange Commission 
10K reports and company annual reports.
    B. Life-cycle cost and net present value. A life-cycle cost is 
calculated for a unit meeting each of the candidate standard levels. 
For color television sets, life-cycle costs at all standard levels are 
less than the baseline unit. Of the three candidate standard levels, a 
unit meeting level 3 has the lowest consumer life-cycle cost. See 
Technical Support Document, Table 4.1.
    However, other than at the max tech level, consumers do not 
purchase units of the same efficiency. At each candidate standard 
level, the Department determines the average change in life-cycle costs 
by considering only those consumers who are being forced by the 
standard to move from a lower efficiency unit to one which just meets 
the standard level being considered. This is done by assuming in the 
base case a distribution of purchases of units meeting the efficiencies 
of the various standard levels. The base case distribution is based on 
the distribution of current sales as a function of efficiency. As each 
standard level is examined, the change in life-cycle cost reported is 
the average change only for affected consumers. Under this scenario, 
standard level 1 would cause reductions in life-cycle costs for the 
average consumer of $10.97, standard level 2 would reduce average life-
cycle costs by $14.52, and standard level 3 by $24.06. The lower life-
cycle costs indicate that no standard level would cause any economic 
burden on the average consumer. See Technical Support Document, Table 
4.2.
    While DOE examined the effect of different discount rates (4, 6, 
and 10 percent) on the life-cycle cost curves and generally found 
little impact, the Department did not consider higher discount rates, 
since such rates would be beyond the range of real, after-tax rates 
that consumers would likely face in financing the purchase of 
television sets. Similarly, DOE did not consider different energy 
prices, including regional prices, in the life-cycle cost analysis. 
Since any standard is to be a national standard, DOE believed that 
national average energy prices were appropriate.
    The net present value analysis, a measure of the net savings to 
society, indicates that standard level 1 would produce a net present 
value of $0.64 billion to consumers. The corresponding net present 
values for levels 2 and 3 are $1.35 billion and $1.67 billion, 
respectively. See Technical Support Document, Table 3.6.
    C. Energy savings. As indicated above, standards will result in 
significant savings of electricity consumption for television sets.
    D. Lessening of utility or performance of products. As indicated 
above, DOE established classes of products in order to assure that the 
standards analyzed would not lessen the existing utility or performance 
of television sets.
    E. Impact of lessening of competition. The determination of this 
factor must be made by the Attorney General.
    F. Need of the nation to save energy. Television sets use 
electricity directly. In 1987, 2.1 percent of residential sector source 
electricity (or 0.22 quads) was accounted for on a national basis by 
television sets.
    In addition, decreasing future energy demand as a result of 
standards will decrease air pollution. See Technical Support Document, 
Appendix D of Volume A.\46\ Decreases in air pollution will occur for 
sulfur oxides (listed in equivalent weight of sulfur dioxide, or 
SO2). For television sets at standard level 1, over the years 1996 
to 2030, the total estimated SO2 reduction would be 120,000 tons. 
During this time period, the peak annual reduction of SO2 
emissions that are expected to be emitted by power plants in the United 
States is 0.07 percent. For standard levels 2 and 3, the reductions are 
261,000 tons and 599,000 tons, respectively. The highest peak annual 
reduction of these levels is 0.29 percent.
---------------------------------------------------------------------------

    \46\See footnote 37.
---------------------------------------------------------------------------

    Standards will also result in a decrease in nitrogen dioxide 
(NO2) emissions. For standard level 1, over the years 1996 to 
2030, the total estimated NO2 reduction would be 99,000 tons. 
During this time period, the peak annual reduction of NO2 
emissions that are expected to be emitted by power plants in the United 
States is 0.07 percent. For standard levels 2 and 3, the reductions are 
225,000 tons and 528,000 tons, respectively. The highest peak annual 
reduction of these levels is 0.29 percent.
    Another consequence of the standards will be the reduction of 
carbon dioxide (CO2) emissions. For standard level 1, over the 
years 1996 to 2030, the total estimated CO2 reduction would be 43 
million tons. During this time period, the peak annual reduction of 
CO2 emissions that are expected to be emitted by power plants in 
the United States is 0.07 percent. For standard levels 2 and 3, the 
reductions are 108 million tons and 263 million tons, respectively. The 
highest peak annual reduction of these levels is 0.29 percent.
    Decreasing future electricity demand is also likely to result in 
reductions in the demand for oil used in electricity generation. 
Because virtually all sources of oil, on the margin, are foreign, any 
reductions in oil demand are likely to be reflected in reductions in 
oil imports. For standard level 1, the estimated decrease in oil 
imports is 8.86 million barrels over the years 1996 to 2030. For 
standard levels 2 and 3, the reductions in oil imports are estimated to 
be 22.05 and 53.88, respectively.
5. Conclusion
    Section 325(l)(2)(A) of the Act specifies that the Department must 
consider, for amended standards, those standards that ``achieve the 
maximum improvement in energy efficiency which the Secretary determines 
is technologically feasible and economically justified.'' Accordingly, 
the Department first considered the max tech level of efficiency, i.e., 
standard level 3 for amended television set standards.
    Of the standard levels analyzed, level 3 will save the most energy 
(3.13 quads between 1996 and 2030). In order to meet this standard, the 
Department assumes that all television sets will have reduced standby 
power and reduced white/black screen power.
    After carefully considering the analysis, the Department is 
establishing a standard for television sets. The Department concludes 
that standard level 3 for television sets saves a significant amount of 
energy and is technologically feasible and economically justified.
    There would be significant energy savings at this level of 
efficiency. During the period 1996-2030, these savings are calculated 
to be 3.13 quads of primary energy. In addition, the standard could 
have a positive effect on the environment by reducing the emissions of 
NO2 and SO2 by 528,000 tons and 599,000 tons, respectively, 
or by as much as 0.29 percent each by the year 2030. Furthermore, the 
standard will reduce emissions of CO2 by 263 million tons, or 0.29 
percent, over the forecast period.
    The technologies that are necessary to meet this standard are 
presently available. The Department finds the level to be economically 
justified. The consumer payback of this standard level is 3.5 years, 
which compares favorably with the 12-year product life. This standard 
has the lowest life-cycle cost and is expected to result in a reduction 
in life-cycle cost of approximately $24. Additionally, the standard is 
expected to have only a slight reduction in the prototypical 
manufacturer's return on equity of negative 1.9 percent. Since this 
standard does not involve substantial redesign or retooling, the 
Department expects that it will not have negative impacts on smaller 
competitors.

V. Environmental, Regulatory Impact, Takings Assessment, Federalism, 
and Regulatory Flexibility Reviews

    The Department has reviewed today's proposed action in accordance 
with the Department's obligations under:
     The National Environmental Policy Act (42 U.S.C. 4321 et 
seq.), the Council on Environmental Quality regulations implementing 
the provisions of the National Environmental Policy Act (40 CFR parts 
1500-1508), and the Department's regulations for compliance with the 
National Environmental Policy Act (10 CFR part 1021);
     Executive Order 12866 (58 FR 51735, October 4, 1993) which 
pertains to agency review of the impact of Federal regulations;
     Executive Order 12630 (53 FR 8859, March 18, 1988) which 
pertains to agency consideration of Federal actions that interfere with 
constitutionally protected property rights;
     Executive Order 12612 (52 FR 41685, October 30, 1987) 
which pertains to agency consideration of Federal actions that would 
have a substantial direct effect on States, on the relationship between 
the Federal Government and the States, and on the distribution of power 
and responsibilities among the various levels of government; and
     The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) 
which requires, in part, that an agency prepare an initial regulatory 
flexibility analysis for any proposed rule unless it determines that 
the rule will not have a ``significant economic impact on a substantial 
number of small entities.'' In the event that such an analysis is not 
required for a particular rule, the agency must publish a certification 
and explanation of that determination in the Federal Register.

a. Environmental Review

    The Department prepared an Environmental Assessment (DOE/EA-0819) 
on the proposed standards pursuant to the National Environmental Policy 
Act, 42 U.S.C. 4321 et seq., and the implementing regulations of the 
Council on Environmental Quality (40 CFR parts 1500-1508). The 
Environmental Assessment addresses the possible incremental 
environmental effects attributable to the application of the proposed 
standards to the design of the eight types of covered products: Room 
air conditioners, water heaters, direct heating equipment, mobile home 
furnaces, kitchen ranges and ovens, pool heaters, fluorescent lamp 
ballasts, and television sets.
    A Finding of No Significant Impact was issued December 1992 and is 
being published elsewhere in today's Federal Register. Publishing the 
finding has been delayed along with the proposed rulemaking due to 
difficulties in resolving issues and coordinating with a related 
rulemaking. The Finding of No Significant Impact concludes that the 
proposed standards would result in no significant environmental impacts 
and that an environmental impact statement is not required.
    The Environmental Assessment is published within the Technical 
Support Document and is available at the DOE Freedom of Information 
Reading Room at the address provided at the beginning of this notice.

b. Regulatory Impact Review

    Executive Order 12866 (58 FR 51735, October 4, 1993) directs that, 
in proposing a significant regulatory action,\47\ an agency perform a 
regulatory analysis. Such an analysis presents major alternatives to 
the regulation that could achieve substantially the same regulatory 
goal at lower cost, as well as a description of the costs and benefits 
(including potential net benefits) of the proposed rule.
---------------------------------------------------------------------------

    \47\``Significant regulatory action'' means any regulatory 
action that is likely to result in a rule that may: (1) Have an 
annual effect on the economy of $100 million or more or adversely 
affect in a material way the economy, a sector of the economy, 
productivity, competition, jobs, the environment, public health or 
safety, or State, local, or tribal governments or communities; (2) 
Create a serious inconsistency or otherwise intefere with an action 
taken or planned by another agency; (3) Materially alter the 
budgetary impact of entitlement, grants, user fees, or loan programs 
or the rights and obligations of recipients thereof; or (4) Raise 
novel legal or policy issues arising out of legal mandates, the 
President's priorities, or the principles set forth in this 
Executive order.
---------------------------------------------------------------------------

    The Department has determined that this proposed rule is a 
``significant regulatory action.'' Accordingly, the draft regulatory 
action has been prepared and submitted to the Office of Management and 
Budget. The Office of Management and Budget has reviewed the draft 
regulatory action under Executive Order 12866.
    The regulatory review of the draft regulatory action is summarized 
below. This summary focuses on the major alternatives considered in 
arriving at the proposed approach to improving the energy efficiency of 
consumer products. The reader is referred to the complete draft 
``Regulatory Impact Analysis,'' which is contained in the Technical 
Support Document, available as indicated at the beginning of this 
notice. It consists of: (1) A statement of the problem addressed by 
this regulation, and the mandate for government action; (2) a 
description and analysis of the feasible policy alternatives to this 
regulation; (3) a quantitative comparison of the impacts of the 
alternatives; and (4) the economic impact of the proposed standard.
    It should be noted at the outset that none of the alternatives that 
were examined for these eight products saved as much energy as the 
proposed rule. Also, most of the alternatives would require that 
enabling legislation be enacted, since authority to carry out those 
alternatives does not presently exist.
Alternatives for Achieving Consumer Product Energy Conservation
    Six major alternatives were identified by DOE as representing 
feasible policy alternatives for achieving consumer product energy 
efficiency. These alternatives include:

     No New Regulatory Action
     Informational Action

--Product labeling
--Consumer education

     Prescriptive Standards
     Financial Incentives

--Tax credits
--Rebates

     Voluntary Energy Efficiency Targets
     The Proposed Approach (Performance Standards)

    Each alternative has been evaluated in terms of its ability to 
achieve significant energy savings at reasonable costs, and has been 
compared to the effectiveness of the proposed rule.
    If no new regulatory action were taken, then no new standards would 
be implemented for these eight products. This is essentially the ``base 
case'' for each appliance. In this case, between the years 1996 and 
2030 there would be expected energy use of 443.6 quads of primary 
energy, with no energy savings and a zero net present value.
    Several alternatives to the base case can be grouped under the 
heading of informational action. They include consumer product labeling 
and the Department's public education and information program. Both of 
these alternatives are mandated by the Act. One base case alternative 
would be to estimate the energy conservation potential of enhancing 
these programs. To model this possibility, the Department assumed that 
market discount rates would be lowered by 5 percent for purchasers of 
these eight products. This resulted in energy savings equal to 1.7 
quads, with expected consumption equal to 441.8 quads. The net present 
value is estimated to be $2.7 billion.
    Another method of setting standards would entail requiring that 
certain design options be used on each product, i.e., prescriptive 
standards. For these eight products, prescriptive standards are assumed 
to be implemented as standards at one level below the performance 
standards. The lower standards level entails slightly smaller 
expenditures for tooling and purchased parts. Consequently, the 
economic impacts that are expected before the implementation date 
should be slightly smaller for prescriptive standards. This resulted in 
energy consumption, between 1996 and 2030, of 389.2 quads, and savings 
of 54.3 quads. The net present value, in 1990 dollars, was $92.3 
billion.
    Various financial incentive alternatives were tested. These 
included tax credits and rebates to consumers, as well as tax credits 
to manufacturers. The tax credits to consumers were assumed to be 15 
percent of the increased expense for higher energy efficiency features 
of these appliances, while the rebates were assumed to be 15 percent of 
the increase in equipment prices. The tax credits to consumers showed a 
change from the base case, saving 3.7 quads with a net present value of 
$6.0 billion. Consumer rebates showed more sizable changes; they would 
save 4.5 quads with a net present value of $8.1 billion.
    Another financial incentive that was considered was tax credits to 
manufacturers for the production of energy-efficient models of these 
eight appliances. In this scenario, an investment tax credit of 20 
percent was assumed. The tax credits to manufacturers had almost no 
effect; the energy consumption estimates are 442.8 quads with savings 
equal to 0.7 quad, and a net present value equal to $0.8 billion.
    The impact of this scenario is so small because the investment tax 
credit was applicable only to the tooling and machinery costs of the 
firms. The firms' fixed costs and most of the design improvements that 
would likely be adopted to manufacture more efficient versions of these 
products would involve purchased parts. Expenses for purchased parts 
would not be eligible for an investment tax credit.
    Two scenarios of voluntary energy efficiency targets were examined. 
In the first one, the proposed energy conservation standards were 
assumed to be voluntarily adopted by all the relevant manufacturers in 
5 years. In the second scenario, the proposed standards were assumed to 
be adopted in 10 years. In these scenarios, the 5-year delay would 
result in energy consumption by these appliances of 388.0 quads, energy 
savings of 55.2 quads, and a net present value of $97.1 billion; the 
10-year delay would result in 398.4 quads of energy being consumed, 
44.8 quads being saved, and a net present value of $76.6 billion.
    These scenarios assume that there would be universal voluntary 
adoption of the energy conservation standards by these appliance 
manufacturers, an assumption for which there is no reasonable 
assurance.
    Lastly, all of these alternatives must be gauged against the 
performance standards that are being proposed in this notice. Such 
performance standards would result in energy consumption of the eight 
appliances to total an estimated 379.4 quads of primary energy over the 
1996-2030 time period. Savings would be 64.1 quads, and the net present 
value would be an expected $108.7 billion.
     As noted at the beginning of this section, none of the 
alternatives that were considered for these products would save as much 
energy as the proposed rule.

c. ``Takings'' Assessment Review

    Executive Order 12630 (53 FR 8859, March 18, 1988) directs that, in 
proposing a regulation, an agency conduct a ``takings'' review. Such a 
review is intended to assist agencies in avoiding unnecessary takings 
and help such agencies account for those takings that are necessitated 
by statutory mandate.
    For purposes of the Order:
    ``Policies that have takings implications'' refers to Federal 
regulations, proposed Federal regulations, proposed Federal 
legislation, comments on proposed Federal legislation, or other Federal 
policy statements that, if implemented or enacted, could effect a 
taking, such as rules and regulations that propose or implement 
licensing, permitting, or other condition requirements or limitations 
on private property use, or that require dedications or exactions from 
owners of private property.\48\
---------------------------------------------------------------------------

    \48\Executive Order 12630, March 15, 1988, Sec. 2.
---------------------------------------------------------------------------

    There are three parts of the appliance standards program that 
conceivably could be viewed as having ``takings implications.'' These 
are testing and certification requirements, the impacts of standard 
levels, and possible DOE testing of products for validation.
    With regard to the first part, namely, testing and certification, 
the Department believes that such a requirement, implementing a long-
established statutory mandate in a manner calculated to minimize 
adverse economic impacts, does not constitute a ``taking'' of private 
property.
    Similarly, the Department's possible validation testing does not 
constitute a ``taking'' within limitations described above.
    Lastly, the impact of standards could be viewed by some as a 
``taking.'' Nevertheless, the Department believes that while an energy 
conservation standard may limit some manufacturers in the range of 
appliance efficiencies they can produce, such narrowing of the energy 
efficiency range does not constitute a ``taking'' in the sense 
described above.
    In short, in none of the three parts of the appliance standards 
program does the Department believe that the provisions of Executive 
Order 12630 pertain.

d. Federalism Review

    Executive Order 12612 (52 FR 41685, October 30, 1987) requires that 
regulations or rules be reviewed for any substantial direct effects on 
States, on the relationship between the Federal Government and the 
States, or on the distribution of power and responsibilities among 
various levels of government. If there are sufficient substantial 
direct effects, then Executive Order 12612 requires preparation of a 
federalism assessment to be used in all decisions involved in 
promulgating and implementing a regulation or a rule.
    The Department finds that today's proposed rule, if finalized, will 
not have a substantial direct effect on State governments. State 
regulations that may have existed on these eight products were 
preempted by the Federal standards established in the National 
Appliance Energy Conservation Act. States could petition the Department 
for exemption from such preemption, and none has done so. Today's Final 
Rule has no added effect on States. Thus, based on the foregoing, the 
Department finds that the preparation of a Federalism assessment for 
this rulemaking is not warranted.
    The Act provides for subsequent State petitions for exemption from 
preemption, which necessarily means that the determination as to 
whether a State law prevails must be made on a case-by-case basis using 
criteria set forth in the Act. When DOE receives such a petition, it 
will be appropriate to consider preparing a federalism assessment 
consistent with the criteria in the Act.

e. Regulatory Flexibility Review

    The Regulatory Flexibility Act of 1980 (Pub. L. 96-354) requires an 
assessment of the impact of regulations on small businesses. Small 
businesses are defined as those firms within an industry that are 
privately owned and less dominant in the market.
    In this rulemaking, eight different products and, hence, industries 
are being addressed. Regulatory flexibility issues will be discussed 
for the industries for which standards are being prescribed.
    First, the energy conservation standard on those room air 
conditioner manufacturers who could be considered small businesses will 
be discussed.
    The room air conditioner industry is characterized by three firms 
with large market shares (accounting for nearly 75 percent of sales) 
and numerous firms sharing the remaining one-quarter of the market.
    There are significant differences among the major firms. For this 
industry, the Department has learned that average cost has an inverse 
relationship to firm size. Thus, the industry has economies of scale, 
and large firms (to the extent that their facilities are up-to-date) 
have lower average costs than small firms. This fact, coupled with 
increasing competitiveness of the national market, probably accounts 
for the continuing consolidation that has been occurring for several 
decades. The fact that the consolidation has been producing larger 
firms strongly corroborates the finding that large firms have a cost 
advantage.
    A principal implication of consolidation is that the smaller of the 
firms will be, on average, in more danger of failing or being bought 
out than will the large firms. Because of the greater precariousness of 
smaller firms, any decrease in average profitability is more likely to 
mean the difference between success and failure for a smaller firm.
    From the point of view of competitiveness, a decrease in average 
profitability could speed up the process of consolidation, producing a 
less competitive industry, while an increase in average profitability 
could help maintain the current levels of competition. Either effect 
might well be temporary, because, in the long run, the number of firms 
should be determined by the industry's cost structure and by the way a 
single firm's elasticity of demand relates to the number of competing 
firms.
    While some small firms have more energy efficient models than 
larger firms, and while some have more models of average efficiency, 
the impact of higher efficiency standards on small firms is likely to 
be mixed. If standards are technologically difficult to meet, however, 
they may hurt selected smaller firms the most, because smaller firms 
have less sophisticated research and development capabilities.
    Secondly, the impact of the energy conservation standards on water 
heater manufacturers needs to be addressed.
    Water heater manufacturing firms can be divided into two groups: 
those that compete on large sales volume products and those that 
compete in small, specialized markets. Small firms are generally forced 
to specialize in small market niches that offer some protection from 
the cost advantage that large firms hold when they can produce in 
volume. This effect can even be observed among the major producers, in 
the tendency of the smaller major producers to produce somewhat more 
specialized products.
    Just like the room air conditioner industry, water heater 
manufacturing is characterized by economies of scale in production, and 
large firms generally tend to have average costs that are lower than 
those of small firms.
    Although larger firms have a cost advantage because of economies of 
scale, the very small firms in the water heater manufacturing industry 
have found market niches in which to survive profitably. There are at 
least two small firms which manufacture standard electric resistance 
water heaters. In addition, there are also two small firms that 
manufacture heat pump water heaters. Therefore, if a very stringent 
efficiency standard for water heaters is mandated, one could expect 
that given the small margins in the industry, some small firms may have 
to leave the market. On the other hand, the small firms that specialize 
in higher efficiency models (such as heat pump water heaters) may 
experience a boom.
     The small firms that sell niche products such as heat pump water 
heaters usually find that these markets have higher margins. As a 
result, it is possible that small firms would have an easier time 
passing through increased variable costs that result from standards, 
and thus may be more positively affected than large firms by standards. 
However, this prediction should be tempered by the observation that if 
standards are technologically difficult to meet, they may hurt selected 
smaller firms the most since, as noted above, smaller firms typically 
have less sophisticated research and development capabilities.
    Thirdly, the direct heating equipment industry must be considered. 
This industry, too, is characterized by economies of scale in 
production, with larger firms having average costs that are lower than 
those of smaller firms. Here, too, there has been continuing 
consolidation over the past several decades.
    The same points raised above about the implications of 
consolidation and competitiveness among water heater firms pertain to 
manufacturers of direct heating equipment as well.
    Next, the mobile home furnace industry will be addressed. In this 
industry, two firms supply all the gas-fired mobile home furnaces. 
Since discussions with industry sources revealed that the market shares 
of the two firms are approximately 50 percent each, the Department 
believes that neither is a small firm on which standards could have a 
significant adverse impact.
    The characterization of the kitchen ranges and oven industry 
(including microwave ovens) is similar to those industries previously 
discussed. This industry, too, displays economies of scale in 
production and increasing consolidation as the larger firms have been 
acquiring smaller ones for the past few decades.
    Since many, if not most, of the energy conservation standards can 
be achieved without significant retooling of plant and equipment, it is 
probable that such standards will not have significant adverse impacts 
on the small firms.
    The pool heater industry, too, is characterized by economies of 
scale in production, with the consequent price advantage that large 
firms have over smaller ones. This industry, though, is already highly 
concentrated, and apparently never had a large number of firms. Most of 
the firms manufacture gas-fired pool heaters as an adjunct to other 
larger lines of business, e.g., boilers, pool and swimming equipment, 
etc. It appears that there are no real niche markets. Nevertheless, 
since the proposed standards are generally not considered to be 
technologically difficult to meet, and since the forecasts are that all 
standard levels are profitable, the Department does not expect 
significant adverse impacts on small firms.
    Another industry that shares the characterization of larger firms 
having cost advantages over smaller ones, i.e., that displays economies 
of scale, is the fluorescent lamp ballast industry. Here, too, there 
has been continuing consolidation over time, and presently, three firms 
produce 90 percent of the market.
    Many (if not most) of the standard levels considered do not require 
significant retooling of plant and equipment. In fact, much of the 
industry is currently retooling in anticipation of future growth, which 
is due in part to demand motivated by demand-side management programs 
of electric utility companies. These factors, combined with the 
estimates that profitability will be higher at all standard levels, 
imply that there will probably not be significant adverse impacts on 
small firms.
    Lastly, the impact of energy conservation standards on the 
television set industry is discussed. This industry also has undergone 
significant consolidation over the past few decades. Presently, as with 
most of the other industries discussed above, the larger firms have 
cost advantages over the smaller ones.
    Zenith is the only domestic television set manufacturer located in 
the U.S., and it has 13 percent of the market. Therefore, there really 
cannot be any adverse small firm impacts since, domestically, there is 
only one firm, and it is not small.
    In view of the foregoing, the Department has determined and hereby 
certifies pursuant to section 605(b) of the Regulatory Flexibility Act 
that today's action will not have a ``significant economic impact on a 
substantial number of small entities.''
    In conclusion, for each of these eight industries, the Department 
finds that the standard levels proposed in today's Proposed Rule will 
not ``have a significant economic impact on a substantial number of 
small entities,'' and it is not necessary to prepare a regulatory 
flexibility analysis.

VI. Public Comment Procedures

 a. Participation in Rulemaking

    The Department encourages the maximum level of public participation 
possible in this rulemaking. Individual consumers, representatives of 
consumer groups, manufacturers, associations, States or other 
governmental entities, utilities, retailers, distributors, 
manufacturers, and others are urged to submit written statements on the 
proposal. The Department also encourages interested persons to 
participate in the public hearing to be held in Washington, DC, at the 
time and place indicated at the beginning of this notice.
    The DOE has established a comment period of 75 days following 
publication of this notice for persons to comment on this proposal. All 
public comments received and the transcript of the public hearing will 
be available for review in the DOE Freedom of Information Reading Room.

b. Written Comment Procedures

    Interested persons are invited to participate in this proceeding by 
submitting written data, views or arguments with respect to the 
subjects set forth in this notice. Instructions for submitting written 
comments are set forth at the beginning of this notice and below.
    Comments (with 10 copies) should be labeled both on the envelope 
and on the documents, ``Eight Products Rulemaking (Docket No. EE-RM-90-
201),'' and must be received by the date specified at the beginning of 
this notice. 10 copies are requested to be submitted. Additionally, the 
Department would appreciate an electronic copy of the comments to the 
extent possible. The Department is currently using WordPerfectTM 
5.1. All comments received by the date specified at the beginning of 
this notice and other relevant information will be considered by DOE 
before final action is taken on the proposed regulation.
    All written comments received on the proposed rule will be 
available for public inspection at the DOE Freedom of Information 
Reading Room, as provided at the beginning of this notice.
    Pursuant to the provisions of 10 CFR 1004.11, any person submitting 
information or data that is believed to be confidential and exempt by 
law from public disclosure should submit one complete copy of the 
document and 10 copies, if possible, from which the information 
believed to be confidential has been deleted. The Department will make 
its own determination with regard to the confidential status of the 
information or data and treat it according to its determination.
    Factors of interest to DOE, when evaluating requests to treat 
information as confidential, include: (1) A description of the item; 
(2) an indication as to whether and why such items of information have 
been treated by the submitting party as confidential, and whether and 
why such items are customarily treated as confidential within the 
industry; (3) whether the information is generally known or available 
from other sources; (4) whether the information has previously been 
available to others without obligation concerning its confidentiality; 
(5) an explanation of the competitive injury to the submitting person 
that would result from public disclosure; (6) an indication as to when 
such information might lose its confidential character due to the 
passage of time; and (7) whether disclosure of the information would be 
in the public interest.

c. Public Hearing

 1. Procedure for Submitting Requests to Speak
    The time and place of the public hearing are indicated at the 
beginning of this notice. The Department invites any person who has an 
interest in these proceedings, or who is a representative of a group or 
class of persons having an interest, to make a written request for an 
opportunity to make an oral presentation at the public hearing. Such 
requests should be labeled both on the letter and the envelope, ``Eight 
Products Rulemaking (Docket No. EE-RM-90-201),'' and should be sent to 
the address, and must be received by the time specified, at the 
beginning of this notice. Requests may be hand-delivered or telephoned 
in to such address between the hours of 8:30 a.m. and 4:30 p.m., Monday 
through Friday, except Federal holidays.
    The person making the request should briefly describe the interest 
concerned and, if appropriate, state why he or she is a proper 
representative of the group or class of persons that has such an 
interest, and give a telephone number where he or she may be contacted. 
Each person selected to be heard will be so notified by DOE as to the 
approximate time they will be speaking.
     Each person selected to be heard is requested to submit an advance 
copy of his or her statement prior to the hearing as indicated at the 
beginning of this notice. In the event any persons wishing to testify 
cannot meet this requirement, that person may make alternative 
arrangements in advance by so indicating in the letter requesting to 
make an oral presentation.
 2. Conduct of Hearing
    The Department reserves the right to select the persons to be heard 
at the hearing, to schedule the respective presentations, and to 
establish the procedures governing the conduct of the hearing. The 
length of each presentation is limited to 15 minutes.
     A DOE official will be designated to preside at the hearing. The 
hearing will not be a judicial or an evidentiary-type hearing, but will 
be conducted in accordance with 5 U.S.C. 533 and section 336 of the 
Act. At the conclusion of all initial oral statements at each day of 
the hearing, each person who has made an oral statement will be given 
the opportunity to make a rebuttal statement, subject to time 
limitations. The rebuttal statement will be given in the order in which 
the initial statements were made. The official conducting the hearing 
will accept additional comments or questions from those attending, as 
time permits. Any interested person may submit, to the presiding 
official, written questions to be asked of any person making a 
statement at the hearing. The presiding official will determine whether 
the question is relevant, and whether time limitations permit it to be 
presented for answer.
     Further questioning of speakers will be permitted by DOE. The 
presiding official will afford any interested person an opportunity to 
question other interested persons who made oral presentations, and 
employees of the United States who have made written or oral 
presentations with respect to disputed issues of material fact relating 
to the proposed rule. This opportunity will be afforded after any 
rebuttal statements, to the extent that the presiding official 
determines that such questioning is likely to result in a more timely 
and effective resolution of such issues. If the time provided is 
insufficient, DOE will consider affording an additional opportunity for 
questioning at a mutually convenient time. Persons interested in making 
use of this opportunity must submit their request to the presiding 
official no later than shortly after the completion of any rebuttal 
statements and be prepared to state specific justification, including 
why the issue is one of disputed fact and how the proposed questions 
would expedite their resolution.
     Any further procedural rules regarding proper conduct of the 
hearing will be announced by the presiding official.
     A transcript of the hearing will be made, and the entire record of 
this rulemaking, including the transcript, will be retained by DOE and 
made available for inspection at the DOE Freedom of Information Reading 
Room as provided at the beginning of this notice. Any person may 
purchase a copy of the transcript from the transcribing reporter.

d. Issues Requested for Comment

     As discussed above in today's notice, DOE has identified a number 
of issues where comments are requested. These issues include, but are 
not limited to, the following:
     The baseline units and the base cases;
     Consideration of incremental impacts of various standard 
levels;
     Market share elasticities;
     Usage elasticities, i.e., rebound effect;
     Appropriate discount rates, including those for 
residential and commercial consumer analyses (life-cycle cost and 
Lawrence Berkeley Laboratory-Residential Energy Model) and the use of a 
social discount rate (Lawrence Berkeley Laboratory-Residential Energy 
Model);
     Energy price forecasts;
     The characterization of prototypical firms for the 
manufacturer impact analysis (Lawrence Berkeley Laboratory-Manufacturer 
Impact Model);
     Efficiency forecasts for these products;
     Any lessening of product utility resulting from the 
addition of the design options identified;
     The effects on forecasts due to the use of national 
average energy prices and usage rates;
     The effects of standards on manufacturers' incentives to 
develop innovative products and product features;
     Any uncertainties in modeling, especially with regard to 
product usage, e.g., changes in usage rates as shown by survey data or 
changes in usage of features;
     Location of water heaters with respect to conditioned 
space;
     Lifetimes of appliances;
     Maintenance costs and failure rates of appliances and 
components;
     The possible expansion of DOE's economic analysis to 
include the variable effects of standards on identifiable sub-groups of 
consumers, and/or the incremental effects of standards relative to 
lower or higher standard levels; and
     Possible modifications or alternatives to LBL's 
Manufacturer Impact Model.
     Many of these issues are not unique to this proposed rule and 
some, such as discount rates and modifications of the Lawrence Berkeley 
Laboratory Manufacturer Impact Model, have been raised in previous DOE 
public notice under the appliance conservation standards program or by 
public comments on these notices. Those issues and the possible 
expansion of DOE's economic analysis in several areas were raised in 
DOE's Advance Notice of Proposed Rulemaking Regarding Energy 
Conservation Standards for Three Types of Consumer Products, published 
on September 8, 1993 (58 FR 47326). DOE hopes that its conclusions in 
these areas for this rulemaking will serve as the basis for the 
development and promulgation of future appliance conservation 
standards, unless comments in future rulemakings make a persuasive case 
to the contrary.

List of Subjects in 10 CFR Part 430

    Administrative practice and procedure, Energy conservation, 
Household appliances.


    Issued in Washington, DC, December 15, 1993.
 Christine A. Ervin,
 Assistant Secretary, Energy Efficiency and Renewable Energy.
    For the reasons set forth in the preamble part 430 of chapter II of 
title 10, Code of Federal Regulations, is proposed to be amended as set 
forth below.

PART 430--ENERGY CONSERVATION PROGRAM FOR CONSUMER PRODUCTS

    1. The authority citation for part 430 continues to read as 
follows:


    Authority: 42 U.S.C. 6291-6309.


    2. Section 430.32 is amended by revising paragraphs (b), (d), (e), 
and (i) through (m) to read as follows:


Sec. 430.32  Energy conservation standards and effective dates.

* * * * *
    (b) Room air conditioners.

------------------------------------------------------------------------
                                             Energy efficiency ratio,   
                                                  effective as of       
                                         -------------------------------
              Product class                               [3 years after
                                            January 1,    publication of
                                               1990         Final Rule] 
------------------------------------------------------------------------
1. Without reverse cycle and with                                       
 louvered sides less than 6,000 Btu.....             8.0            11.1
2. Without reverse cycle and with                                       
 louvered sides 6,000 to 7,999 Btu......             8.5            10.3
3. Without reverse cycle and with                                       
 louvered sides 8,000 to 13,999 Btu.....             9.0            11.0
4. Without reverse cycle and with                                       
 louvered sides 14,000 to 19,999 Btu....             8.8            11.1
5. Without reverse cycle and with                                       
 louvered sides 20,000 and more Btu.....             8.2             9.6
6. Without reverse cycle and without                                    
 louvered sides less than 6,000 Btu.....             8.0            10.7
7. Without reverse cycle and without                                    
 louvered sides 6,000 to 7,999 Btu......             8.5             9.9
8. Without reverse cycle and without                                    
 louvered sides 8,000 to 13,999 Btu.....             8.5            10.7
9. Without reverse cycle and without                                    
 louvered sides 14,000 to 19,999 Btu....             8.5            10.8
10. Without reverse cycle and without                                   
 louvered sides 20,000 and more Btu.....             8.2             9.3
11. With reverse cycle, and with                                        
 louvered sides.........................             8.5            10.8
12. With reverse cycle, without louvered                                
 sides..................................             8.0            10.4
------------------------------------------------------------------------

* * * * *
    (d) Water heaters.

------------------------------------------------------------------------
                              Energy factor, effective as of            
                 -------------------------------------------------------
  Product class                                         [3 years after  
                   January 1, 1990   April 15, 1991     publication of  
                                                          Final Rule]   
------------------------------------------------------------------------
1. Gas..........  0.62--(.0019 x R  0.62--(.0019 x R  0.64--(.0017 x Mea
                   ated Storage      ated Storage      sured Storage    
                   Volume in         Volume in         Volume in        
                   gallons).         gallons).         gallons).        
2. Gas            N/A.............  0.62--(.0019 x R  0.75.             
 Instantaneous.                      ated Storage                       
                                     Volume in                          
                                     gallons).                          
3. Oil..........  0.59--(.0019 x R  0.59--(.0019 x R  0.73--(.0017 x Mea
                   ated Storage      ated Storage      sured Storage    
                   Volume in         Volume in         Volume in        
                   gallons).         gallons).         gallons).        
4. Electric.....  0.95--(.00132 x   0.93--(.00132 x   1.96--(.00117 x Me
                   Rated Storage     Rated Storage     asured Storage   
                   Volume in         Volume in         Volume in        
                   gallons).         gallons).         gallons).        
------------------------------------------------------------------------
Note: Rated Storage Volume equals the water storage capacity of a water 
  heater, in gallons, as specified by the manufacturer. Measured Storage
  Volume equals the water storage capacity of a water heater, in        
  gallons, as measured in paragraph 6.1.1 of the test procedure.        

    (e) Furnaces.

------------------------------------------------------------------------
                                                              Annual    
                                            Annual fuel     efficiency, 
                                            utilization    effective as 
              Product class                 efficiency,     of [3 years 
                                           effective as        after    
                                           of January 1,  publication of
                                               1992         Final Rule] 
------------------------------------------------------------------------
1. Furnaces (excluding classes noted                                    
 below).................................              78  ..............
2. Gas-Fired mobile home furnaces.......           \1\75            74.3
3. Oil-Fired mobil home furnaces........           \1\75            74.7
4. Small furnaces (other than furnaces                                  
 designed solely for installation in                                    
 mobile homes), input rate less than                                    
 45,000 Btu/hour........................              78  ..............
5. Boilers (excluding gas steam)........              80  ..............
6. Gas steam boilers....................              75  ..............
------------------------------------------------------------------------
\1\Effective as of September 1, 1990.                                   

* * * * *
    (i) Direct heating equipment.

------------------------------------------------------------------------
                                                              Annual    
                                            Annual fuel     efficiency, 
                                            utilization    effective as 
             Product class                  efficiency,     of 3 years  
                                           effective as        after    
                                           of January 1,  publication of
                                               1990         Final Rule] 
------------------------------------------------------------------------
1. Gas wall fan type up to 42,000 Btu/                                  
 hour...................................              73            72.2
2. Gas wall fan type over 42,000 Btu/                                   
 hour...................................              74            73.4
3. Gas wall gravity type up to 10,000                                   
 Btu/hour...............................              59            67.7
4. Gas wall gravity type over 10,000 Btu/                               
 hour up to 12,000 Btu/hour.............              60            67.7
5. Gas wall gravity type over 12,000 Btu/                               
 hour up to 15,000 Btu/hour.............              61            67.9
6. Gas wall gravity type over 15,000 Btu/                               
 hour up to 19,000 Btu/hour.............              62            68.2
7. Gas wall gravity type over 19,000 Btu/                               
 hour up to 27,000 Btu/hour.............              63            73.6
8. Gas wall gravity type over 27,000 Btu/                               
 hour up to 46,000 Btu/hour.............              64            73.9
9. Gas wall gravity type over 46,000 Btu/                               
 hour...................................              65            74.2
10. Gas floor type up to 37,000 Btu/hour              56            70.7
11. Gas floor type over 37,000 Btu/hour.              57            70.0
12. Gas room type up to 18,000 Btu/hour.              57            64.4
13. Gas room type over 18,000 Btu/hour                                  
 up to 20,000 Btu/hour..................              58            69.9
14. Gas room type over 20,000 Btu/hour                                  
 up to 27,000 Btu/hour..................              63            67.1
15. Gas room type over 27,000 Btu/hour                                  
 up 46,000 Btu/hour.....................              64            71.2
16. Gas room type over 46,000 Btu/hour..              65            71.5
------------------------------------------------------------------------

    (j) Kitchen ranges and ovens.
    Gas kitchen ranges and ovens with an electrical supply cord shall 
not be equipped with a constant burning pilot light. The standard is 
effective on January 1, 1990. The annual energy use of a kitchen range 
and oven shall be the sum of the annual energy use of any of the 
following components incorporated into the kitchen range and oven, and 
shall not exceed the allowable sum of energy usages for those 
components listed below.

------------------------------------------------------------------------
                                                  Annual energy use,    
                                               effective as of [3 years 
      Kitchen range and oven component        after publication of Final
                                                         Rule]          
------------------------------------------------------------------------
1. Electric ovens, self-cleaning............  267 kWh                   
2. Electric ovens, non-self-cleaning........  218 kWh                   
3. Gas ovens, self-cleaning.................  1.64 MMBtu                
4. Gas ovens, non-self-cleaning.............  1.14 MMBtu                
5. Microwave ovens..........................  233 kWh                   
6. Electric cooktop, coil element...........  260 kWh                   
7. Electric cooktop, smooth element.........  294 kWh                   
8. Gas cooktop..............................  1.71 MMBtu                
------------------------------------------------------------------------

    (k) Pool heaters.

----------------------------------------------------------------------------------------------------------------
                                                                                            Annual efficiency   
                                                                   Thermal efficiency    (percent), effective as
                         Product class                          (percent), effective as     of [3 years after   
                                                                   of January 1, 1990      publication of Final 
                                                                                                  Rule]         
----------------------------------------------------------------------------------------------------------------
Pool heaters..................................................                       78                     82.2
----------------------------------------------------------------------------------------------------------------

    (l) Television sets.

------------------------------------------------------------------------
                                              Annual energy use--kWh/yr,
                                               effective as of [3 years 
                Product class                 after publication of Final
                                                         Rule]          
------------------------------------------------------------------------
1. Color--Screen size of 13.0 to 33 inches..  20.5 + 6.1D               
------------------------------------------------------------------------
Note: D equals the screen size, in inches, as specified by the          
  manufacturer.                                                         

    (m) Fluorescent lamp ballasts. (1) Except as provided in paragraphs 
(m)(2) and (m)(3) of this section, each fluorescent lamp ballast 
designed--
    (i) To operate at nominal input voltages of 120 or 277 volts;
    (ii) To operate with an input current frequency of 60 Hertz; and
    (iii) For use in connection with F32, F40, F96, or F96HO lamps; 
shall have a power factor of 0.90 or greater and shall have a ballast 
efficacy factor not less than the following: 

------------------------------------------------------------------------
                                       Efficacy factor, effective as of 
                            Ballast  -----------------------------------
      Product class          input                       [3 years after 
                            voltage   January 1, 1990    publication of 
                                                           Final Rule]  
------------------------------------------------------------------------
1. One F40 lamp..........        120          \1\1.805           \1\2.50
                                 277          \1\1.805           \1\2.50
2. Two F40 lamps.........        120          \1\1.060           \1\1.28
                                 277          \1\1.050           \1\1.28
3. Two F96 lamps.........        120          \1\0.570           \1\0.72
                                 277          \1\0.570           \1\0.72
4. Two F96HO lamps.......        120          \1\0.390           \1\0.50
                                 277          \1\0.390           \1\0.50
5. Three F40 lamps.......        120             (\2\)           \1\0.87
                                 277  ................           \1\0.87
6. Four F40 lamps........        120             (\2\)           \1\0.67
                                 277  ................           \1\0.67
7. One F32T8 lamp........        120             (\2\)              3.17
                                 277  ................              3.17
8. Two F32T8 lamps.......        120             (\2\)              1.58
                                 277  ................              1.58
9. Three F32T8 lamps.....        120             (\2\)              1.06
                                 277  ................              1.06
10. Four F32T8 lamps.....        120             (\2\)              0.76
                                 277  ................             0.76 
------------------------------------------------------------------------
\1\Applies to T12 lamps only.                                           
\2\Not applicable.                                                      

    (2) The standards that are effective January 1, 1990, as described 
in paragraph (m)(1) of this section, do not apply to:
    (i) A ballast which is designed for dimming or for use in ambient 
temperatures of 0 deg.F or less, or
    (ii) A ballast which has a power factor of less than 0.09 and is 
designed for use only in residential building applications.
    (3) The standards described in paragraph (m)(1) of this section, 
effective [3 years after publication of Final Rule], do not apply to:
    (i) A ballast which is designed for use in ambient temperatures of 
0 deg.F or less, or
    (ii) A ballast which has a power factor or less than 0.90 and is 
designed for use only in residential building applications.

[FR Doc. 94-4586 Filed 3-3-94; 8:45 am]
BILLING CODE 6450-01-P