[Federal Register Volume 66, Number 143 (Wednesday, July 25, 2001)]
[Proposed Rules]
[Pages 38822-38844]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 01-18429]



[[Page 38821]]

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Part III





Department of Energy





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Office of Efficiency and Renewable Energy



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10 CFR Part 430



Energy Conservation Program for Consumer Products; Central Air 
Conditioners and Heat Pumps Energy Conservation Standards; Proposed 
Rule

  Federal Register / Vol. 66 , No. 143 / Wednesday, July 25, 2001 / 
Proposed Rules  

[[Page 38822]]


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DEPARTMENT OF ENERGY

Office of Energy Efficiency and Renewable Energy

10 CFR Part 430

[Docket Number EE-RM-98-440]
RIN 1904-AA77


Energy Conservation Program for Consumer Products; Central Air 
Conditioners and Heat Pumps Energy Conservation Standards

AGENCY: Office of Energy Efficiency and Renewable Energy, Department of 
Energy.

ACTION: Supplemental proposed rule; proposed withdrawal of final rule.

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SUMMARY: In response to a petition for reconsideration, and as a result 
of review under President Bush's Regulatory Review Plan, the Department 
of Energy (DOE) is proposing to withdraw its January 22, 2001 final 
rule setting forth energy conservation standards for residential 
central air conditioners and central air conditioning heat pumps that 
are not yet effective and not enforceable until January 23, 2006. As a 
substitute, DOE proposes to amend the currently enforceable standards 
by raising the minimum energy efficiency levels by 20 percent. DOE also 
invites public comment on proposed regulatory amendments to define and 
implement statutory limitations on its authority to prescribe amended 
energy conservation standards.

DATES: Comments must be received on or before October 9, 2001. DOE is 
requesting a signed original, a computer diskette (WordPerfect 8) and 
10 copies of the written comments. DOE will also accept e-mailed 
comments, but you must send a signed original. Oral views, data, and 
arguments may be presented at the public hearing in Washington, DC., 
beginning at 9 a.m. on September 13, 2001.
    DOE must receive requests to speak at the public hearing and a copy 
of your statements no later than 4 p.m., September 10, 2001, and we 
request that you provide a computer diskette (WordPerfect 8) of each 
statement at that time.

ADDRESSES: Please submit written comments, oral statements, and 
requests to speak at the public hearing to: Brenda Edwards-Jones, U.S. 
Department of Energy, Office of Energy Efficiency and Renewable Energy, 
Energy Conservation Program for Consumer Products: Central Air 
Conditioners and Heat Pumps, Docket No. EE-RM/STD-98-440, 1000 
Independence Avenue, SW., Washington, DC 20585-0121. You may send 
emails to: [email protected].
    The hearing will begin at 9:00 a.m., in Room 1E-245 at the U.S. 
Department of Energy, Forrestal Building, 1000 Independence Avenue, 
SW., Washington DC. You can find more information concerning public 
participation in this rulemaking proceeding in Section VII, ``Public 
Comment,'' of this notice of proposed rulemaking (NOPR).
    You may read copies of the public comments, the Technical Support 
Document for Energy Efficiency Standards for Consumer Products: Central 
Air Conditioners and Heat Pumps (TSD), the transcript of the public 
hearing, workshop transcripts in this proceeding, the petition for 
reconsideration submitted by the Air-Conditioning and Refrigeration 
Institute, and other post-promulgation submissions at the DOE Freedom 
of Information (FOI) Reading Room, U.S. Department of Energy, Forrestal 
Building, Room 1E-190, 1000 Independence Avenue, SW., Washington, DC 
20585, (202) 586-3142, between the hours of 9 a.m. and 4 p.m., Monday 
through Friday, except Federal holidays. You may obtain copies of the 
TSD and analysis spreadsheets from the Office of Energy Efficiency and 
Renewable Energy's (EERE) web site at: http://www.eren.doe.gov/buildings/codes_standards/applbrf/central_air_conditioner.html.

FOR FURTHER INFORMATION CONTACT: Dr. Michael E. McCabe, U.S. Department 
of Energy, Office of Energy Efficiency and Renewable Energy, Forrestal 
Building, EE-41, 1000 Independence Avenue, SW., Washington, DC 20585-
0121, (202) 586-0854, e-mail: [email protected], or Eugene Margolis, 
Esq., U.S. Department of Energy, Office of General Counsel, Forrestal 
Building, GC-72, 1000 Independence Avenue, SW., Washington, DC 20585, 
(202) 586-9507, e-mail: [email protected].

SUPPLEMENTARY INFORMATION:

Table of Contents

I. Introduction
II. Authority to Reconsider the January 22, 2001, Final Rule
III. Proposal to Withdraw Final Rule
    A. Legal Issues
    1. Failure to Obtain the Views of the Department of Justice on 
the Potential Anti-Competitive Impact of 13 SEER Standards
    2. Failure of the Statement of Basis for the Final Rule to 
Adequately Address Cumulative Regulatory Burdens on Manufacturers
    B. Policy Issues
    1. Burdens on Consumers
    2. Burdens on Manufacturers
    a. Cumulative Regulatory Burden
    b. Financial Burdens Associated with New Standards
    C. Conclusion
IV. Proposed Rule
    A. Background
    1. Statutory Authority
    2. Rulemaking History
    B. Overview of the Proposed Standards
    1. Central Air Conditioner and Heat Pump Features
    2. Consumer Benefits
    3. National Benefits
    C. Technological Feasibility
    D. General Discussion of Economic Justification Factors
    1. Economic Impact on Manufacturers and Consumers
    2. Life-Cycle Costs and Rebuttable Presumption
    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
    E. Methodology Used in DOE Analyses
V. Analytical Results and Conclusions
    A. Overview of Analytical Results
    1. General
    2. Through-the-Wall Products
    3. Other Space-Constrained Products
    B. Re-weighting of Factors
    1. Re-weighting of Burdens on Consumers
    2. Re-weighting of Burdens on Manufacturers
    a. Cumulative Regulatory Burden
    b. Financial Burdens Associated with New Efficiency Standards
    C. Conclusions Regarding Conventional Products
    D. Conclusions Regarding Space-Constrained Products
VI. Procedural Issues and Regulatory Review
    A. Review Under the National Environmental Policy Act
    B. Review Under Executive Order 12866
    C. Review Under the Regulatory Flexibility Act
    D. Review Under the Paperwork Reduction Act
    E. Review Under Executive Order 12988
    F. Review Under Executive Order 12630
    G. Review Under Executive Order 13132
    H. Review Under the Unfunded Mandates Reform Act of 1995
    I. Review Under the Treasury and General Government 
Appropriations Act, 1999
    J. Review Under Executive Order 13211
VII. Public Comment
    A. Written Comment Procedures
    B. Public Workshop/Hearing
    1. Procedure for submitting Request to Speak
    2. Conduct of Hearing

I. Introduction

    Pursuant to section 325 of the Energy Policy and Conservation Act 
(EPCA) (42 U.S.C. 6295) and the Administrative

[[Page 38823]]

Procedure Act (APA) (5 U.S.C. 553), DOE today publishes a three part 
proposal with regard to energy conservation standards for central air 
conditioners and central air conditioning heat pumps. First, DOE 
proposes regulatory provisions to clarify that section 325(o)(1), which 
qualifies DOE's rulemaking authority to prescribe amended energy 
conservation standards, applies as of an effective date for modifying 
the Code of Federal Regulations (CFR) set forth in the notice of final 
rulemaking and established consistent with the Congressional Review Act 
(5 U.S.C. 801-804). Second, in order to correct arguable legal errors 
and policy shortcomings, DOE proposes to withdraw the final rule 
entitled ``Energy Conservation Program for Consumer Products; Central 
Air Conditioners and Heat Pump Energy Conservation Standards' which was 
published in the Federal Register (FR) on January 22, 2001 (61 FR 
7170). Third, based on: (1) Previous determinations regarding the 
significance of potential energy savings, technological feasibility, 
and other factors; and (2) factual information already in the record, 
DOE proposes to determine that elevation of the currently enforceable 
central air conditioner and central air conditioning heat pump energy 
conservation standards by 20 percent is the maximum increase that is 
economically justified. Consistent with that proposed determination and 
except for through-the-wall product classes, DOE proposes a Seasonal 
Energy Efficiency Rating (SEER) of 12 with a corresponding Heating 
System Performance Factor (HSPF) of 7.4 which would apply to 
manufacturers in 2006. With respect to space-constrained, through-the-
wall product classes, DOE is today proposing more modest increases in 
the existing standards, which is discussed later in this SUPPLEMENTARY 
INFORMATION. 
    Today's action partly is a result of DOE activities under President 
Bush's Regulatory Review Plan. Pursuant to that plan, DOE conducted an 
internal review of the three final rules issued under section 325 of 
EPCA that DOE published at the end of the Clinton Administration, 
including final rules concerning energy conservation standards for 
clothes washers, water heaters, and central air conditioners and 
central air conditioning heat pumps. Consistent with the EPCA criteria 
for determining whether a standard level is economically justified 
under section 325 (42 U.S.C. 6295(o)(2)(B)), DOE examined each of these 
rules to determine, among other things, whether the rulemaking record 
was complete and whether the affirmative determination of economic 
justification was based on adequate findings with regard to the 
statutorily required considerations that make up the test of economic 
justification.
    While DOE examined the three appliance energy conservation 
standards rulemakings under the President's Regulatory Review Plan, DOE 
received petitions for reconsideration for each final rule. In 
addition, DOE received notice that the Gas Appliance Manufacturers 
Association (with regard to the water heater rule) and the Air-
Conditioning and Refrigeration Institute (ARI) (with regard to the 
central air conditioner rule) filed petitions for review in the United 
States Court of Appeals for the Fourth Circuit.
    While DOE did not seek public comment as part of the internal 
review conducted under the President's Regulatory Review Plan or with 
regard to the petitions for reconsideration, DOE received written 
statements in opposition to reconsideration of each of the three final 
rules. DOE also had an informal meeting with representatives of various 
environmental advocacy groups who had already filed statements opposing 
reconsideration of the water heater and the central air conditioner 
final rules.
    Ultimately, DOE decided that neither the clothes washer rule nor 
the water heater rule warranted further rulemaking action and denied 
the related petitions for reconsideration. See 66 FR 19714 (April 17, 
2001). With regard to central air conditioners and central air 
conditioning heat pumps, DOE concluded that ARI had raised substantial 
questions as to the legal sufficiency of the January 22, 2001 final 
rule and that the interests of justice therefore dictated that DOE 
further postpone the rule's effective date in light of the pendency of 
ARI's petition for judicial review in the Fourth Circuit and its 
related petition for reconsideration. 66 FR 20191 (April 20, 2001). At 
that time DOE indicated that it would likely resolve these issues 
through supplemental rulemaking that would be forthcoming shortly.
    For the reasons discussed in section III of this notice, DOE has 
now concluded that the January 22, 2001 final rule should be 
reconsidered and therefore grants ARI's petition. In particular, DOE is 
of the view that: (1) DOE should have invited the Department of Justice 
to submit a supplemental determination on the potential anti-
competitive impact; (2) the statement of basis for the final rule did 
not sufficiently explain DOE's consideration of cumulative burden 
attributable to other Federal agencies' and State regulatory actions, 
which was necessary to DOE's conclusion regarding the potential impact 
of the final rule on manufacturers; and (3) DOE gave inadequate weight 
to the potential impact of higher installation and equipment costs on 
some types of consumers and to potential burdens on manufacturers.
    DOE recognizes that its conclusion that the January 22, 2001 final 
rule was questionable on legal and policy grounds and the initiation of 
litigation in the Fourth Circuit has left less than ideal options for a 
rulemaking that, had it been concluded on time, would have been final 
on January 1, 1994 (42 U.S.C. 6295(d)). If DOE were to allow the 
January 22, 2001 final rule to become effective, there is a significant 
possibility of a court ordered remand for further consideration. The 
length of time it would take to deal with consequences of a court 
ordered remand would be substantial. It was just this sort of 
consideration that motivated Congress to enact the 1987 amendments to 
EPCA that require this rulemaking. As the legislative history of those 
amendments makes clear, an underlying legislative purpose was to cure 
the problem of indefinite delay that followed the decision in Natural 
Resources Defense Council v. Herrington, 768 F.2d 1355 (D.C. Cir. 1985) 
which vacated and remanded an appliance energy conservation standards 
rulemaking. See S. Rep. No. 100-6, 100th Cong, 1st Sess., 4 (1987) and 
H.R. Rep. No. 100-11, 100th Cong., 1st Sess., 28 (1987). DOE also 
recognizes that, given the opposition to reconsideration, there is a 
near certainty of a lawsuit challenging DOE's further rulemaking 
actions. However, since litigation appears to be inevitable regardless 
of what option DOE chooses, DOE has concluded that the better course is 
to reopen the rulemaking record on issues regarding economic 
justification with the objective of publishing, after considering 
public comments, a final rule, as soon as possible in 2001.

II. Authority and Policy Regarding Reconsideration of Final Rules 
Under Section 325(o)(1) of EPCA

    In reviewing the January 22, 2001 final rule under the President's 
Regulatory Review Plan, and in considering ARI's petition for 
reconsideration and the statement in opposition to it, DOE has had the 
occasion to construe and apply the provisions of section 325(o)(1) of 
EPCA for the first time since they were added

[[Page 38824]]

to EPCA by the National Appliance Energy Conservation Act of 1987 
(NAECA) (Pub. L. 100-12). In relevant part, section 325(o)(1) of EPCA 
provides as follows:

    The Secretary may not prescribe any amended standard which 
increases the maximum allowable energy use, * * * or decreases the 
minimum required energy efficiency, of a covered product.

42 U.S.C. 6295(o)(1).
    In its petition for reconsideration, ARI said the following about 
section 325(o)(1):

    We note that the provision in EPCA that prohibits decreasing the 
minimum required energy efficiency of covered products, 42 U.S.C. 
562(o)(1)[sic], is inapplicable here. 10 SEER is the minimum 
required energy efficiency. New efficiency minimum would not be 
required under the rule until several years from now (the rule 
provides for such minimums in 2006). Moreover, the effective date of 
the rule has been suspended, and there is pending litigation 
challenging the validity of the rule. Thus, there has been no final 
result related to the rulemaking.

ARI Petition, p. 3, n. 2.
    Referring to the 1987 amendments to EPCA, the environmental 
advocacy organizations argued that ``it is clear that, under NAECA, DOE 
may not amend the rule to weaken its energy efficiency standards.'' 
After quoting from section 325(o)(1), they went on to say:

    Thus DOE is statutorily precluded from amending the Final Rule 
to weaken its energy efficiency standards, as ARI requests in its 
petition. ARI's argument (Petition at footnote 2) that this 
provision is ``inapplicable'' because the rule phases in tighter 
energy efficiency standards over time, is incorrect. * * * The 
timing of the phase-in of these standards is irrelevant.

Statement in Opposition, p. 5.
    Although the diametrically opposed conclusions reached by ARI and 
the environmental advocacy organizations' response are clear enough, 
those conclusions are based on arguments that are too summary to 
evaluate. DOE's interpretation of the statute is set forth below, and 
DOE invites ARI and the environmental advocacy organizations to 
reexamine their respective positions and to comment on DOE's analysis 
and the resulting proposed amendments to 10 CFR Part 430.
    The starting point for analysis is the text of the statute. The 
critical term in section 325(o)(1) is ``minimum required energy 
efficiency.'' EPCA does not define this term. However, in context, it 
is clear that a SEER and an HSPF are benchmarks of ``minimum required 
energy efficiency'' for central air conditioners and central air 
conditioning heat pumps. See 42 U.S.C. 6295(d)(1) and (d)(2). The key 
question, however, is which SEER and HSPF represent the ``minimum 
required energy efficiency'' for central air conditioners and central 
air conditioning heat pumps that may not be decreased by an amended 
standard.
    Had the new SEER and HSPF set out in the January 22, 2001 final 
rule been allowed to take effect, but (as the rule set forth) been made 
applicable only to appliances manufactured on or after January 23, 
2006, we think this would be a close question. A reasonable argument 
could be made that the new SEER and HSPF became ``required'' 
immediately as to such appliances provided they were manufactured on or 
after January 23, 2006. A reasonable argument could also be made that 
the new SEER and HSPF would not be ``required'' until January 23, 2006, 
when appliances manufactured after that date would have had to comply 
with them. We address this question, and other considerations bearing 
on the answer to it, at greater length below.
    In fact, however, the January 22, 2001 final rule expressly stated 
that the amendments it set out to existing standards in the Code of 
Federal Regulations would not take effect until 30 days after 
publication in the Federal Register. Well before that date arrived, on 
February 2, 2001, DOE postponed that effective date for an additional 
60 days. Before that 60-day period had passed, on April 18, 2001, DOE 
further postponed the amendments' effective date pending the outcome of 
petitions by ARI for reconsideration and for judicial review.
    As a result, the new SEER and HSPF, though set out in a final rule, 
never in any sense achieved the status of being the ``required'' 
``minimum energy efficiency'' benchmarks. There has never been a single 
moment under any understanding of the word ``required'' at which any 
central air conditioner or central air conditioning heat pump, 
including one manufactured after January 23, 2006, could even arguably 
have been legally required to be manufactured in conformity with them. 
Hence, whatever might have been the case had the January 22 final rule 
been allowed to take effect, we do not see how the publication of a 
final rule that would have changed those standards, but was prevented 
by later agency action from doing so, could possibly establish 
``minimum required energy efficiency'' benchmarks.
    This interpretation of ``minimum required energy efficiency'' is 
reinforced by the rest of the sentence in section 325(o)(1) of which 
the phrase is a part. That sentence establishes a limitation on the 
``amended standards'' the Secretary may prescribe. That wording 
strongly suggests that the ``minimum required energy efficiency'' 
levels below which the Secretary may not go are the ones established by 
the standards being amended. Because of the various actions postponing 
the effective date of the amendments to the standards it proposed, the 
January 22, 2001 rule never actually effectuated any amendment to the 
prior standards. Therefore, the standards that we now propose to amend 
are not the ones that would have been in place had the amendments set 
out in the January 22 rule actually been made. Rather, they are the 
standards prescribed by EPCA (SEER of 10.0 and HSPF of 6.8 for split 
systems manufactured after January 1, 1992, SEER of 9.7 and HSPF of 6.6 
for single package systems manufactured after January 1, 1993), 
unamended until now by anything, including the never-made-effective 
amendments set out in the January 22, 2001 rule.
    In our view, the foregoing analysis establishes that EPCA is 
unambiguous on the question of whether standards that are published in 
the Federal Register, but not yet effective, represent the ``minimum 
required energy efficiency'' for central air conditioners and central 
air conditioning heat pumps. Clearly, the standards set out in the 
January 22, 2001 notice of final rulemaking cannot be the ``minimum 
required energy efficiency'' benchmarks for purposes of section 
325(o)(1).\1\ The question remains whether DOE should construe the term 
``minimum required energy efficiency'' to mean (A) energy efficiency 
standards that are not yet enforceable against the manufacturers, but 
that have been prescribed in a final rule amending prior standards, 
which amendments have been made to the CFR pursuant to an effective 
date that has passed; or (B) energy efficiency standards that are 
currently enforceable against the manufacturers if they manufacture and 
sell a non-compliant product.
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    \1\ We also believe that even if the statute were found to be 
ambiguous, for the reasons set out in the discussion that follows, 
that would not be the interpretation that we should select as a 
matter of policy.
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    DOE believes that alternative (A) is the preferable construction of 
the term, but only if the effective date selected for the final rule is 
consistent with other applicable laws and regulations and allows the 
Secretary an opportunity promptly to correct legal and policy errors 
that may have been contained in the final rule. If that precondition is 
satisfied, DOE believes alternative (A) will better advance the 
relevant

[[Page 38825]]

statutory and policy considerations underlying section 325(o)(1): to 
promote greater energy efficiency while providing greater certainty to 
manufacturers who must plan and make the expenditures necessary to 
comply with an amended energy conservation standard--which is often a 
multi-year endeavor with substantial costs. We note that the relative 
certainty the interpretation set out in alternative (A) produces for 
manufacturers, which is a key comparative advantage of this 
interpretation over the competing one, is intimately tied to a proper 
effective date choice that facilitates prompt error correction, thereby 
potentially avoiding litigation that would seriously undermine the 
certainty sought to be achieved.
    DOE believes that this resolution of the ambiguities in the statute 
is consistent with the statute's text, structure, legislative history, 
and the fundamental policy choices it makes. We believe that on balance 
this approach better accomplishes the statute's objectives than either 
adopting alternative (A) without the qualification set out above, 
thereby establishing a set of procedures that could have the effect of 
preventing the Secretary, within a short period after publication of a 
final rule that would modify such standards, from correcting defects in 
them that subsequently come to his attention; or adopting alternative 
(B), thereby reading the phrase ``minimum required energy efficiency'' 
to encompass only energy efficiency standards as of the date upon which 
manufacturers have to comply with those standards. Although at least 
the latter approach may well be a permissible interpretation of section 
325(o)(1), DOE believes that the view set out in our proposed rule is 
the better one. DOE invites members of the public to comment on this 
proposed policy.
    The latter view--that a standard is only covered by section 
325(o)(1) after manufacturers are required to comply with it--does at 
first blush appear to be the most natural reading of the phrase. This 
view, however, is in tension with the rest of the sentence, which, as 
explained above, suggests that the relevant point of comparison is the 
standard being amended, regardless of whether manufacturers actually 
have to comply with it. Moreover, if adopted, this view would allow the 
Secretary to change the energy efficiency standards right up to the 
minute before the compliance date. This seems to slight important 
reliance interests given significant weight in other respects by EPCA's 
provisions on central air conditioner standards. For example, section 
325(d) provides that with respect to central air conditioners, any 
amended standard contained in a final rule published on January 1, 1994 
can apply only to products manufactured on or after January 1, 1999. It 
similarly provides that any amended standard contained in a final rule 
published between January 1, 1994 and January 1, 2001 can apply only to 
products manufactured on or after January 1, 2006. The purpose of these 
delays is plainly to give manufacturers a significant amount of time to 
develop and manufacture new products after a new standard is adopted 
but before it becomes enforceable, thereby greatly diminishing the 
costs imposed by new standards. These delays also suggest that a change 
of standard on the eve of the manufacture of a product would be quite 
disruptive--which stands to reason given the lead-time necessary to be 
in a position to manufacture a compliant product. Thus, to allow a 
standard to be blocked at the last minute before the compliance 
deadline would potentially leave a rather large residual uncertainty 
difficult to reconcile with the central purpose of establishing a 
climate of regulatory stability served by these closely related 
portions of EPCA.
    The legislative history of section 325(o)(1), although sparse, also 
suggests that this interpretation may not be the one best suited to 
accomplish the statute's objectives. That history suggests that section 
325(o)(1) itself was in fact also intended in significant measure to 
promote regulatory certainty--a goal it would not achieve very 
effectively, given the importance of such certainty not only at the 
time of manufacture but well before manufacture has begun, if the 
provision is interpreted to apply to a standard only after the 
compliance date for that standard has passed.
    The only significant information in section 325(o)(1)'s history 
appears in the committee reports which comment on identical bill 
language that was ultimately enacted without change. In the Senate 
bill, the language that became section 325(o)(1) was denominated new 
section 325(j). The Senate report says the following about that new 
section:

    New section 325(j) establishes the criteria by which the 
Secretary may prescribe new or amended standards. The Secretary may 
not increase the maximum allowable energy use or decrease the 
minimum required energy efficiency of a covered product.

Senate Report No.100-6 at p.8. That statement paraphrases the bill 
language without shedding any light on what the language was supposed 
to mean.
    By contrast, the House report does add to our understanding by 
identifying at least what the House committee thought the purpose of 
the bill language was. In describing that language, which appears in 
new section 325(l)(1) of the House bill, the House report states:

    DOE may not prescribe an amended standard that increases the 
maximum allowable energy use or decreases the minimum required 
energy efficiency of a covered product. The purpose of this 
requirement is to prevent the Secretary from weakening any energy 
conservation standard for a covered product, whether established in 
this Act or subsequently adopted. This serves to maintain a climate 
of relative stability with respect to future planning by all 
interested parties * * *

House Report No. 100-11 at p. 22. Since the Senate report differs from 
the House report and no conference committee report exists, the House 
report language does not represent the views of the Congress as a 
whole. Therefore, that language should be used cautiously as a 
contributory factor in construing section 325(o)(1) and framing 
implementing regulations.
    The House report language indicates that the term ``minimum 
required energy efficiency'' includes both the legislated standards 
established by Congress in 1987 and amended standards ``subsequently 
adopted.'' However, the word ``adopted'' is not a term that is used in 
EPCA or the APA. As applied to the sequence of steps that make up the 
rulemaking process, it is unclear which step is deemed to be the moment 
that an amended standard is ``adopted.''
    More instructive is the sentence from the House report that states 
with regard to the underlying purpose of section 325(o)(1): ``This 
serves to maintain a climate of relative stability with respect to 
future planning by all interested parties * * *'' This suggests, as 
noted above, that section 325(o)(1) was specifically expected, at least 
in the view of the House Committee, to act harmoniously with the other 
provisions of EPCA discussed above in facilitating regulatory 
certainty. The latter purpose is better accomplished by construing the 
provision to become applicable at a point well before the compliance 
date.
    On the other hand, the reliance interests at stake also are not 
best served in the long run by taking the opposite course and adopting 
the view that section 325(o)(1) becomes applicable at the earliest 
possible moment. Let us imagine, for example, that DOE were routinely 
to make final rules containing standards potentially subject to section 
325(o)(1) effective as soon as possible after publication. This would 
likely result in its making such rules effective

[[Page 38826]]

30 days after publication.\2\ DOE also could refuse to reconsider any 
aspect of such a rule relevant to the standard (unless it could 
complete its consideration and correct any errors within that 30-day 
time period), no matter how serious or legitimate a question might be 
raised, since to do so effectively, it would have to prevent the 
standard from going into effect.
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    \2\ Under the APA in most cases it could not make them effective 
before them.
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    This approach, however, would not be the best way for DOE to 
promote regulatory certainty either. It is common for agencies to 
entertain petitions for reconsideration at least for a short period 
after issuance of a final rule as well as to correct errors on their 
own motion during that time. Moreover, there is good reason why 
agencies follow this course, since otherwise such errors would have to 
await the completion of judicial review before they could be corrected, 
thereby creating substantial delay and uncertainty. Accordingly, this 
approach too, in addition to running counter to ordinary administrative 
practices that there is no reason to believe section 325(o)(1) was 
intended to abrogate, is not the best way to advance the regulatory 
stability sought by section 325(o)(1) and the other related EPCA 
provisions discussed above.
    This approach also would create unnecessary tension between section 
325(o)(1) and the Congressional Review Act (CRA) (5 U.S.C. 801-804) 
enacted in 1996. Under CRA, before a final rule can become 
``effective,'' DOE must send a report to Congress (5 U.S.C. 
801(a)(1)(A) and (B)). With respect to a ``major rule'' within the 
meaning of 5 U.S.C. 804(2), CRA provides for the passing of a 60-
calendar-day-lie-before-the-Congress period, after submission of the 
agency report, at the end of which a final rule could become effective 
in the absence of a Congressional resolution of disapproval (5 U.S.C. 
801(a)(3)). CRA allows for an exception to the 60-day-lie-before 
requirement only if the President determines that a major rule should 
take effect before the end of that period because of an imminent health 
or safety threat or other emergency; because it is necessary to the 
enforcement of criminal laws or national security; or if it is issued 
pursuant to a statute implementing an international trade agreement (5 
U.S.C. 801(c)).
    In DOE's view, this last set of considerations also points the way 
to the answer to the question of at what time amendments to an energy-
efficiency-setting-standard should best be viewed as having set 
``minimum required energy efficiency'' benchmarks. For the reasons 
explained at the beginning of this section, that time must be after the 
final rule making the amendments to the standard is in effect. But, 
consistent with the objective of section 325(o)(1) and the other 
closely related EPCA provisions of promoting regulatory certainty, and 
to harmonize section 325(o)(1) with common administrative practice and 
the CRA, such final rules should ordinarily be made effective only 
after a reasonable hiatus after the date of publication has elapsed, 
allowing for prompt use of ordinary administrative error correction 
procedures and completion of congressional review under CRA. This is 
the earliest that manufacturer planning in reliance on a final major 
rule to amend appliance energy conservation standards can realistically 
be expected to begin. The certainty of the regulatory regime sought to 
be achieved therefore cannot occur until that time.
    Accordingly, DOE believes it should construe section 325(o)(1) as 
applying to standards designed to set ``minimum required energy 
efficiency'' benchmarks at the point in time a final rule containing 
such a standard becomes effective. It also believes, however, that it 
should take care to select effective dates for final rules containing 
such standards that are consistent with the CRA and any other 
applicable law. This approach will best promote the regulatory 
certainty sought by section 325(o)(1) and its companion provisions and 
also comports well with the ordinary understanding of when a rule 
containing such standards has established ``require[ments].''
    We note that DOE's own past practice on the selection of such 
effective dates has not been consistent with this approach. But it also 
has not been internally consistent even very recently, potentially 
creating wide variations regarding when section 325(o)(1) would become 
applicable as well as running afoul of the various considerations 
outlined above.
    Typically, DOE has not made amendments to EPCA standards contained 
in final rules effective until the date on which manufacturers have had 
to comply with them. See 10 CFR 430.32. That is the approach we 
followed even very recently in the case of the rules setting out the 
amendments to standards for water heaters (66 FR 4474, 4497, Jan. 17, 
2001, effective Jan. 20, 2004) and clothes washers (66 FR 3314, 3331, 
Jan. 12, 2001, effective Jan. 1, 2004). We departed from that practice 
in the case of the central air conditioner rule at issue here. We did 
so, however, not because we had considered the potential ramifications 
of our prior approach and of the approach we were taking to this rule 
for purposes of the applicability of section 325(o)(1), but rather in 
an effort to follow the current guidance of the Office of the Federal 
Register, which distinguishes between the date on which a final rule is 
effective for purposes of modifying the Code of Federal Regulations and 
the date on which a final rule is effective for purposes of requiring 
compliance with its requirements. See National Archives and Records 
Administration, Office of the Federal Register, Document Drafting 
Handbook, Chapter 2, p. 2-12 (October 1998). Consistent with the recent 
guidance in the Document Drafting Handbook, but without taking into 
account either the CRA or potential section 325(o)(1) ramifications, 
DOE specified a 30-day-after-publication effective date consistent with 
the APA and a compliance date of January 23, 2006, consistent with 
EPCA.
    Having now considered these issues more carefully, DOE believes it 
should adopt the approach outlined above which is specifically designed 
to accomplish the relevant EPCA policy objectives. Accordingly, it 
proposes to adopt a series of amendments to the EPCA rules intended to 
address these general issues. First, it proposes to define by rule the 
terms ``maximum allowable energy use'' and ``minimum required energy 
efficiency'' as energy conservation standards established by a final 
rule that has become effective in the sense that it has modified the 
Code of Federal Regulations. It further proposes to include in its 
definition that to qualify, the final rule has to have made that 
modification on a date selected consistent with the CRA and other 
applicable law. Finally, in order to avoid confusion, it proposes a 
technical amendment adding a definition of the EPCA term ``effective 
date,'' which EPCA, inconsistently with the Office of Federal Register 
guidance, treats as synonymous with ``compliance date.''
    To that end, DOE proposes to add a new Sec. 430.34 which tracks the 
language of section 325(o)(1). It also proposes to add to the 
definitions section, Sec. 430.2, new definitions for ``maximum 
allowable energy use'' and ``minimum required energy efficiency.'' 
These definitions would treat amendments to a standard contained in a 
final rule as establishing ``maximum allowable energy use'' and 
``minimum required energy efficiency'' benchmarks for purposes of 
section 325(o)(1) on the date such a rule made those amendments 
effective as to the Code of Federal

[[Page 38827]]

Regulations, provided that DOE sets out in the EFFECTIVE DATE line of a 
notice of final rulemaking under section 325 a date on which the Code 
of Federal Regulations will be modified that is selected consistent 
with the CRA and any other applicable law. In most instances, the date 
selected will be 60 to 80 days after the date of publication.
    Consistent with the proposed definitions to be added to 
Sec. 430.34, DOE intends to make the final rule based on today's 
proposal effective 75 days from the date of publication.
    Finally, to make the technical change referenced above, DOE 
proposes also to add to Sec. 430.2 a definition of the term ``effective 
date'' as used in EPCA and 10 CFR 430.32. This definition clarifies 
that for purposes of construing the term under EPCA (but not for 
purposes of determining the point at which amendments to a standard 
qualify for protection under section 325(o)(1)), the ``effective date'' 
is the date on which an amended energy conservation standard becomes 
enforceable.

III. Proposal To Withdraw Final Rule

    In this portion of the SUPPLEMENTARY INFORMATION, DOE sets forth 
its conclusions with regard to the legal and policy issues that DOE 
considered in deciding whether to propose withdrawal of the January 22, 
2001 final rule. Included among these issues are certain issues raised 
by ARI in its petition for reconsideration.

A. Legal Issues

1. Failure To Obtain the Views of the Department of Justice on the 
Potential Anti-Competitive Impact of 13 SEER Standards
    In its petition, ARI contends that DOE should have invited the 
Department of Justice to submit a supplemental statement of its views 
on the potential anti-competitive impact of DOE's final rule 
establishing a 13 SEER standard for central air conditioners and heat 
pumps (ARI Petition Discussion, paragraph d). Although EPCA does not 
provide that DOE must seek supplemental determinations from the 
Department of Justice on final rules, DOE concludes, for reasons set 
forth below, that it should have requested supplemental views from the 
Department of Justice on the effect of a uniform 13 SEER standard on 
competition, particularly on the question of potential consolidation in 
the central air conditioning and heat pump industry.
    Section 325(o)(2)(B)(i) of EPCA requires DOE to determine whether 
the benefits of a new or amended energy conservation standard exceed 
its burdens by considering ``to the greatest extent practicable'' seven 
factors, including: ``(V) the impact of any lessening of competition, 
as determined in writing by the Attorney General, that is likely to 
result from the imposition of the standard'' (42 U.S.C. 
6295(o)(2)(B)(i)). Section 325(o) also provides that:

    For purposes of clause (i)(V), the Attorney General shall make a 
determination of the impact, if any, of any lessening of competition 
likely to result from such standard and shall transmit such 
determination, not later than 60 days after the publication of a 
proposed rule prescribing or amending an energy conservation 
standard, in writing to the Secretary, together with an analysis of 
the nature and extent of such impact. Any such determination and 
analysis shall be published by the Secretary in the Federal 
Register.

42 U.S.C. 6295(o)(2)(B)(ii).
    In context, it is clear that the term ``the standard'' in section 
325(o)(2)(B)(i) refers to any new or amended energy conservation 
standard prescribed by DOE under section 325(o) of EPCA. Because the 
Department of Justice must transmit its determination to DOE within 60 
days after the publication of a proposed rule, EPCA contemplates that 
the Department of Justice's determination on the anti-competitive 
effects of a proposed rule will enable DOE to fulfill its substantive 
obligation to consider the Department's expert opinion on the anti-
competitive impact of a final standard.
    DOE submitted the October 5, 2000 NOPR to the Attorney General for 
review pursuant to the foregoing provisions. The NOPR described the 
range of potential trial standards considered by DOE, and proposed 
adoption of Trial Standard Level 3, i.e., a minimum SEER of 12 for 
central air conditioner product classes and a SEER of 13 for central 
air conditioning heat pumps, with a corresponding HSPF of 7.7. The 
Department of Justice, consistent with its past practice, confined its 
response to the proposed standards, corresponding to Trial Standard 
Level 3.
    The Department of Justice conveyed to DOE three concerns about the 
proposed rule's potential impact on competition (see December 4, 2000, 
letter in the Appendix to this notice). First, the Department of 
Justice was concerned the proposed rule would have a disproportionate 
impact on small manufacturers. Second, it was concerned that the 
proposed standard for heat pumps, and in some instances the standard 
for air conditioners, would have an adverse impact on some 
manufacturers of equipment to be used to retrofit existing housing and 
used in manufactured housing. Third, it was concerned that the proposed 
13 SEER for central air conditioning heat pumps could cause consumers 
to shift from heat pumps to other systems that include resistance heat 
systems, reducing the competition that presently exists between 
manufacturers of air conditioning heat pumps and manufacturers of those 
other heating systems. The Department of Justice urged DOE to take 
these concerns into account and consider ``setting a lower SEER 
standard for heat pumps, such as the standard included in Trial 
Standard Level 2, and a lower SEER standard for air conditioners for 
retrofit markets where there are space constraints and for manufactured 
housing.'' 66 FR 7200.
    DOE published a final rule on January 22, 2001 adopting standards 
that corresponded to Trial Standard Level 4 (the next higher level) and 
prescribed a minimum SEER of 13 for all the product classes, except for 
niche products, with a corresponding 7.7 HSPF. The preamble to the 
final rule addressed the Department of Justice's specific concerns 
about the October 5 proposed rule (66 FR 7192-93). It also addressed 
the potential anti-competitive impact of the final rule's uniform 13 
SEER standard, in general terms:

    We recognize that the standard levels we are adopting could 
accelerate the consolidation trend among major manufacturers. 
However, as discussed in the manufacturer impact analysis, we do not 
expect that any manufacturer or group of manufacturers will be able 
to use the standards as an opportunity to consolidate their market 
power. (See TSD, Chapter 8). Therefore, we believe that competition 
will remain vigorous under the adopted standard, and any lessening 
of competition that does occur will not result in price increases or 
loss of choice and utility for consumers.

66 FR 7176. The TSD referenced chapter also concluded that, under Trial 
Standard Level 4, several major companies would likely consider selling 
their production assets rather than make the investment required to 
meet the new standard or face the loss of profits caused by the absence 
of premium products in the marketplace (see, TSD 8.7.4, p. 8-64).
    Thus, DOE simply relied on the manufacturer impact analysis in the 
TSD to support its conclusion with respect to the potential impact on 
competition of the final rule's Trial Standard Level 4 (13 SEER) 
standards. DOE did not have the benefit of the Department of Justice's 
views on the potential anti-competitive impact of the

[[Page 38828]]

final 13 SEER standards for both air conditioners and heat pumps.
    As the TSD shows, the central issue regarding the January 22 final 
rule is the potential effect of 13 SEER standards on consolidation in 
the central air conditioning and heat pump industry. DOE adverted to 
this in the preamble to the final rule with the statement ``that the 
standard levels we are adopting could accelerate the consolidation 
trend among major manufacturers.'' 66 FR 7176. Arguably, to comply with 
section 325(o)(2)(B)(i), DOE should have requested supplemental views 
from the Department of Justice on this issue.
2. Failure of the Statement of Basis for the Final Rule to Adequately 
Address Cumulative Regulatory Burdens on Manufacturers
    To determine whether a standard is economically justified, DOE must 
assess the economic impact of the standard on the manufacturers and 
consumers of the products subject to such standard (42 U.S.C. 
6295(o)(2)(B)(i)(I)). One aspect of manufacturer burden is the 
cumulative impact of multiple DOE standards and the regulatory actions 
of other Federal agencies and States that affect the manufacture of a 
covered product.
    In its petition for reconsideration, ARI criticized DOE for not 
discussing information in the TSD on the cumulative regulatory burden 
on the central air conditioning and heat pump industry (ARI Petition 
Discussion, paragraph m). The preamble to the final rule addressed the 
issue of cumulative regulatory burden in conclusory terms in two brief 
sentences, as follows: ``The Department has considered the manufacturer 
burdens as described in the manufacturer impact analysis of the TSD in 
adopting the new standard. These include cumulative burdens.'' 66 FR 
7174. The statement of basis and purpose required by the APA (5 U.S.C. 
553(c)) to accompany a final rule must establish a rational connection 
between the facts the agency found and the choices it made. In light of 
the evidence of cumulative regulatory burdens on manufacturers 
documented in the TSD, it is doubtful whether the mere assertion by DOE 
that it considered the cumulative burdens on manufacturers is adequate 
to establish a rational basis for DOE's determination on manufacturer 
impact resulting from a 13 SEER standard.
    DOE's discussion and conclusions regarding the weight that should 
be given to cumulative regulatory burden in this rulemaking are set 
forth in the ``Policy Issues'' discussion immediately following this 
section, and in the preamble to today's proposed rule (see Section 
V.B.2. of this SUPPLEMENTARY INFORMATION).

B. Policy Issues

    DOE reviewed the basis and rationale for the January 22, 2001 final 
rule pursuant to the President's Regulatory Review Plan, and it 
considered carefully numerous claims by ARI of error or insufficiency 
in DOE's analyses and its weighing of the benefits and burdens of the 
final rule. As a result of this review, DOE has decided to accord more 
weight to certain factors, and those changes, which reflect the current 
Administration's policies, support DOE's decisions to propose 
withdrawal of the January 22 final rule and to publish today's proposed 
rule.
1. Burdens on Consumers
    During its review of the January 22 final rule, DOE reassessed its 
weighing of burdens and benefits of the standards, giving particular 
attention to the question of whether burdens on consumers received 
adequate consideration and weight.
    DOE currently is particularly concerned that new standards be 
designed to distribute their burdens and benefits as fairly as 
practical. Although some disparity is expected in any national 
standard, the disparity in impacts between low-income and typical 
consumers is of more concern at more stringent efficiency standards 
because increases in first cost are felt more sharply by lower income 
consumers. The potential disparities would be diminished under the 12 
SEER standard that DOE is proposing today.
    DOE also has considered that the fraction of consumers who are 
negatively impacted by a 13 SEER standard, in terms of life-cycle cost 
savings versus the existing standards, is substantially higher than the 
fraction who are negatively impacted in other recent DOE efficiency 
rules. To illustrate, the efficiency standard for clothes washers, 
published in the Federal Register on January 12, 2001 (66 FR 3314), 
will negatively impact 19 percent of all consumers and 19 percent of 
low income consumers, and the efficiency standard for gas-fired 
residential water heaters, published in the Federal Register on January 
17, 2001 (66 FR 4474), will result in negative life-cycle cost impacts 
for 12 percent of all consumers.\3\ By contrast, under a 13 SEER 
standard for split air conditioners, 39 percent and 50 percent of 
average and low income consumers, respectively, would be negatively 
impacted. A 12 SEER standard would result in a lower fraction of 
consumers who are negatively impacted: 25 percent and 34 percent of 
average and low income consumers, respectively.
---------------------------------------------------------------------------

    \3\ For split air conditions and gas water heaters, the fraction 
provided represents those consumers who incur an increase in life-
cycle costs that exceeds 2 percent of the total life-cycle cost, 
with low-income data available only for split air conditioners. For 
clothes washers, the fraction represents those consumers who incur 
any life-cycle cost increase at all. For direct comparison with 
clothes washers, the fraction of all consumers incurring any 
increase in life-cycle costs for gas water heaters in 22 percent and 
for split air conditioners is 55 percent.
---------------------------------------------------------------------------

    In summary, DOE has decided that, in issuing the January 22 final 
rule, inadequate discussion and weight was given to the fraction of all 
and low income consumers who incur negative life-cycle cost impacts as 
a result of the new standard.
2. Burdens on Manufacturers
    a. Cumulative Regulatory Burden. In the preceding section, DOE 
concluded that the statement of basis and purpose for the January 22 
final rule did not adequately address the issue of cumulative 
regulatory burden, which DOE recognizes is a key component of the 
assessment of manufacturer impact (see Process Improvement Rule, 
section 10(g), codified at 10 CFR Part 430, Subpart C, Appendix A). 
DOE's decision to propose withdrawal of the January 22 final rule is 
based in part on DOE's current view that the preamble to the final rule 
contained insufficient discussion of cumulative regulatory burdens and 
gave insufficient weight to cumulative regulatory burdens.
    As mentioned by ARI, DOE did have information, which was included 
in the TSD, of cumulative regulatory burdens. The TSD for the final 
rule shows that the most significant regulation facing the central air 
conditioning industry is the Environmental Protection Agency's (EPA's) 
ban on new equipment utilizing a particular hydrofluorocarbon (HCFC), 
HCFC-22, as a refrigerant, scheduled to take effect in January 2010. In 
addition, an EPA ban on use of HCFC-141b as a foam blowing agent (used 
in water heaters, refrigerators and freezers) takes effect on January 
1, 2003. The TSD reports that companies must develop a wealth of new 
knowledge and experience to replace the refrigerant HCFC-22, and it 
estimates the cost of converting equipment to a substitute refrigerant 
to be on the order of $50 million per company. Additional regulatory 
burdens on manufacturers of residential central air conditioner and 
heat pump products are new DOE efficiency standards for refrigerators 
and freezers (effective July 1, 2001) and

[[Page 38829]]

water heaters (effective January 20, 2004); a Consumer Product Safety 
Commission voluntary standard for flammable vapor ignitions on water 
heaters (under development); and EPA standards under section 112(d) of 
the Clean Air Act on emissions of hazardous air pollutants from the 
coating of large appliances (expected to apply in 2004). While 
acknowledging that the uncertainty surrounding DOE's estimates is high, 
the TSD estimates the total investment required by manufacturers of 
central air conditioner and heat pumps to meet these cumulative 
regulatory burdens will exceed $479 million. This estimate excludes the 
cost of manufacturer compliance with DOE's amended efficiency standard 
for air conditioners and heat pumps, which the TSD estimates is 
comparable the cost of the HCFC-22 phase-out (TSD, Section 8.6.).
    b. Financial Burdens Associated with New Standards. The TSD 
demonstrated that the more stringent 13 SEER standards adopted in the 
January 22 final rule would likely cause the industry's net cash flow 
to drop below zero (Section 8.4.6). It also noted that one segment of 
the industry (denominated ``lower operating cost manufacturers'' in the 
analysis) would likely benefit from more stringent standards, and that 
another segment of the industry (denominated ``higher operating cost 
manufacturers'') would bear nearly the total financial burden (Section 
8.5). According to the TSD, the potential outcomes of these impacts 
could include accelerated consolidation and stifling of innovation. As 
a matter of policy, DOE considers these outcomes to be potentially 
serious, and certainly material, consequences that should be discussed 
when adopting new standards. DOE is proposing to withdraw the January 
22 final rule, in part, to give greater weight to the negative cash 
flow and maldistribution of burdens on industry of 13 SEER standards. 
DOE explicitly addresses these issues in the preamble to today's 
proposed rule in Section V.B.2. of this SUPPLEMENTARY INFORMATION.

IV. Proposed Rule

A. Background

1. Statutory Authority
    Part B of Title III of the Energy Policy and Conservation Act 
provides for the Energy Conservation Program for Consumer Products 
other than Automobiles (42 U.S.C. 6291 et seq.). The consumer products 
subject to this program (often referred to hereafter as ``covered 
products'') include central air conditioners and heat pumps. Under the 
Act, the program consists essentially of three parts: testing, 
labeling, and Federal energy conservation standards.
    As discussed in the Introduction in Section I of this SUPPLEMENTARY 
INFORMATION, NAECA prescribed initial Federal energy conservation 
standards for central air conditioners and heat pumps (42 U.S.C. 
6295(d)). NAECA further amended EPCA by specifying that DOE is to 
review and publish amended standards by January 1, 1994 (42 U.S.C. 
6295(d)(3)(A)). Under EPCA, any new or amended standard must be 
designed so as to achieve the maximum improvement in energy efficiency 
that is technologically feasible and economically justified (42 U.S.C. 
6295(o)(2)(A)).
    Section 325(o)(2)(B)(i) provides that before DOE determines whether 
a standard is economically justified, it must first solicit comments on 
a proposed standard (42 U.S.C. 6295(o)(2)(B)(i)). That section further 
provides that, after reviewing the comments, DOE must determine whether 
the benefits of the standard exceed its burdens, based, to the greatest 
extent practicable, on a weighing of the following seven factors:
    (i) The economic impact of the standard on the manufacturers and on 
the consumers of the products subject to such standard;
    (ii) The savings in operating costs throughout the estimated 
average life of the covered product in the type (or class) compared to 
any increase in the price of, or in the initial charges for, or 
maintenance expenses of, the covered products which are likely to 
result from the imposition of the standard;
    (iii) The total projected amount of energy savings likely to result 
directly from the imposition of the standard;
    (iv) Any lessening of the utility or the performance of the covered 
products likely to result from the imposition of the standard;
    (v) The impact of any lessening of competition, as determined in 
writing by the Attorney General, that is likely to result from the 
imposition of the standard;
    (vi) The need for national energy conservation; and
    (vii) Other factors the Secretary considers relevant.
    In addition, section 325(o)(2)(B)(iii) establishes a rebuttable 
presumption of economic justification in instances where the Secretary 
determines that ``the additional cost to the consumer of purchasing a 
product complying with an energy conservation standard level will be 
less than three times the value of the energy * * * savings during the 
first year that the consumer will receive as a result of the standard, 
as calculated under the applicable test procedure * * * .'' (42 U.S.C. 
6295(o)(2)(B)(iii)). The rebuttable presumption test is an alternative 
path to establishing economic justification.
2. Rulemaking History
    The existing standards for residential central air conditioners and 
heat pumps have been in effect since 1992. As described in the 
Introduction to this SUPPLEMENTARY INFORMATION, the efficiency 
descriptor for air conditioner and heat pump cooling efficiency is SEER 
(or Seasonal Energy Efficiency Ratio), and the descriptor for heat pump 
heating efficiency is HSPF (or Heating Seasonal Performance Factor). 
SEER is DOE's measure of energy efficiency for the seasonal cooling 
performance of central air conditioners and heat pumps. HSPF is DOE's 
measure of energy efficiency for the seasonal heating performance of 
heat pumps. The current central air conditioner and heat pump 
efficiency standards are as follows:

--Split system air conditioners and heat pumps--10 SEER/6.8 HSPF
--Single package air conditioners and heat pumps--9.7 SEER/6.6 HSPF

    On September 8, 1993, DOE published an Advance Notice of Proposed 
Rulemaking (ANOPR) announcing DOE's intention to revise the existing 
central air conditioner and heat pump efficiency standard. 58 FR 47326. 
During a workshop on June 30, 1998, DOE presented for comment an 
analytical framework for the central air conditioner and heat pump 
standards rulemaking. The analytical framework described the different 
analyses to be conducted, the methods for conducting them, the use of 
new spreadsheets, and the relationship of the various analyses. On 
November 24, 1999, DOE published a Supplemental ANOPR and invited 
additional comment on issues raised following publication of the 
original ANOPR. 64 FR 66306.
    On October 5, 2000, DOE published a notice of proposed rulemaking 
(October 5, 2000, NOPR). 65 FR 59590. The energy efficiency standards 
that DOE proposed for residential central air conditioners and central 
air conditioning heat pumps (heat pumps) were as follows:

--Split-system and single-package air conditioners--12 SEER
--Split-system and single package heat pumps--13 SEER/7.7 HSPF
--Through-the-wall air conditioners and heat pumps--11 SEER/7.1 HSPF.

    In addition to the increase proposed in SEER and HSPF, DOE 
requested comments on a proposal to adopt a

[[Page 38830]]

standard for steady-state cooling efficiency, denominated EER (or 
Energy Efficiency Ratio).\4\ The proposal of an EER was designed to 
ensure more efficient operation at high outdoor temperature, during 
periods when electricity use by air conditioners is at its peak. A 
public hearing was held in Washington, D.C. on November 16, 2000 to 
hear oral views, data and arguments on the proposed rule.
---------------------------------------------------------------------------

    \4\ EER is a steady-state measure of energy efficiency which 
measures efficiency at a prescribed outdoor temperature (95 deg. F), 
and is one of the test conditions in DOE's test procedure used to 
develop the SEER.
---------------------------------------------------------------------------

    As explained in the Introduction to this SUPPLEMENTARY INFORMATION, 
DOE published a final rule on January 22, 2001 that would have required 
a SEER of 13 for product classes covered by the rule with a 
corresponding HSPF of 7.7 for heat pumps. Subsequent events, including 
notices delaying the final rule's effective date pursuant to the 
President's Regulatory Review Plan, petitions for judicial review, and 
ARI's petition for reconsideration of the final rule, are also 
discussed in the Introduction.

B. Overview of the Proposed Standards

    DOE, through today's proposed rule, would amend the almost ten-year 
old minimum efficiency standards for new central air conditioners and 
heat pumps. These amended standards would take into account a decade of 
technological advancements and would save consumers and the nation 
money, significant amounts of energy, and have substantial 
environmental and economic benefits.
    If today's proposed standards go into effect, they would 
essentially raise the energy efficiency standards to 12 SEER for new 
central air conditioners and to12 SEER/7.4 HSPF for new central air 
conditioning heat pumps. In its petition for reconsideration, ARI 
argued that if a 12 SEER standard is adopted for central air 
conditioning heat pumps, the HSPF should be no higher than 7.3 
(Petition Discussion, paragraph n). ARI, and other persons who 
commented on the October 5 proposed rule, urged DOE to revise the HSPF 
levels to reflect differences among the SEER-HSPF relationships across 
equipment of varying capacity ratings. As DOE explained in the preamble 
to the January 22, 2001 final rule, DOE established the SEER-HSPF 
parings in order to maintain the offset between the minimum SEER and 
the minimum HSPF in the current standards. Because heating energy is a 
large fraction of total heat pump energy consumption, DOE stated it 
would not relax the HSPF level in the absence of sound evidence 
regarding the burdens that would be mitigated (66 FR 7184). DOE 
continues to think an HSPF of 7.4 is the appropriate level for 12 SEER. 
Data discussed in the TSD (Section 4.6.2.1) show that most models of 
equipment below 3-tons meet or exceed an HSPF of 7.4, and almost a 
third of models available below 20,000 BTU/hr. meet or exceed an HSPF 
of 7.4.
    The proposed standards would apply to products manufactured for 
sale in the United States, as of July 25, 2006. The proposed standard 
for split-system air conditioners, the most common type of residential 
air conditioning equipment, represents a 20 percent improvement in 
energy efficiency. For split-system heat pumps, the new standard would 
represent a 20 percent improvement in cooling efficiency and a 9 
percent improvement in heating efficiency. The standard would also 
increase the cooling efficiency of single-package air conditioners and 
single-package heat pumps by 24 percent and the heating efficiency of 
single-package heat pumps by 12 percent. Finally, DOE is proposing to 
adopt new standards for some products to ensure that more efficient 
versions remain available for certain niche applications. DOE proposes 
to determine that the new standards are the highest efficiency levels 
that are technologically feasible and economically justified as 
required by law. Several aspects of today's proposed standards warrant 
highlighting here, as follows:
1. Central Air Conditioner and Heat Pump Features
    The proposed efficiency levels can be met by central air 
conditioner and heat pump designs that are already available in the 
market. DOE fully expects variations of these models to exist under the 
new standards, offering all the features and utility that are found in 
currently available products.
2. Consumer Benefits
    Table 1 summarizes the ``characteristics'' of today's typical 
central air conditioners and heat pumps. Table 2 presents the 
implications for the average consumer of the standards becoming 
effective in 2006.

                                 Table 1.--Characteristics of Today's Typical Central Air Conditioners and Heat Pumps \1\
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                        Split system air                                            Single package air
                                          conditioner               Split system heat pump             conditioner             Single package heat pump
--------------------------------------------------------------------------------------------------------------------------------------------------------
Average Installed Price........  $2,236.......................  $3,668......................  $2,607......................  $3,599.
Annual Utility Bill \2\........  $189.........................  $453........................  $189........................  $453.
Life Expectancy................  18.4 years...................  18.4 years..................  18.4 years..................  18.4 years.
Energy Consumption per year....  2,305 kWh....................  6,549 kWh...................  2,305 kWh...................  6,549 kWh.
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ ``Typical'' equipment have cooling and heating efficiencies of 10 SEER and 6.8 HSPF, respectively.
\2\ Utility bill pertains to the energy cost of operating the air conditioner or heat pump.


                                             Table 2.--Implications of New Standards for the Average Consumer
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                        Split system air                                            Single package air
                                          conditioner               Split system heat pump             conditioner             Single package heat pump
--------------------------------------------------------------------------------------------------------------------------------------------------------
Year Standard Comes into Effect  2006.........................  2006........................  2006........................  2006.
New Average Installed Price....  $2,449.......................  $3,812......................  $2,765......................  $3,748.
Estimated Price Increase.......  $213.........................  $144........................  $158........................  $149.
Annual Utility Bill Savings....  $31..........................  $50.........................  $31.........................  $50.
Average Net Saving over          $113.........................  $365........................  $163........................  $421.
 Equipment Life.
Energy Savings per Year........  384 kWh......................  768 kWh.....................  384 kWh.....................  768 kWh.
--------------------------------------------------------------------------------------------------------------------------------------------------------


[[Page 38831]]

    The most typical air conditioner (i.e., split system air 
conditioner whichcomprises approximately 65 percent of today's central 
air conditioning and heat pump market) has an installed price of $2,236 
and an annual utility costs of $189. In order to meet the 2006 proposed 
standard, DOE estimates that the installed price of a typical air 
conditioner would be $2,449, an increase of $213.\5\ This price 
increase would be offset by an annual energy savings of about $31 on 
the utility bills. The most typical heat pump (i.e., split system heat 
pump) currently has an installed price of $3,668 and annual utility 
costs of $453. In order to meet the 2006 proposed standard, DOE 
estimates that the installed price of a typical heat pump would be 
$3,812, an increase of $144.\6\ This price increase would be offset by 
an annual energy savings of about $50 on the utility bills.
---------------------------------------------------------------------------

    \5\ Based on estimates supplied by the industry trade 
association, the Air-Conditioning and Refrigeration Institute (ARI), 
the installed price is estimated to be $2,510, an increase of $274.
    \6\ Based on estimates supplied by ARI, the installed price is 
estimated to be $3,933, an increase of $265.
---------------------------------------------------------------------------

    DOE recognizes that most consumers pay energy prices that are 
higher or lower than the ``typical'' consumer and operate their 
equipment more or less often. Consequently, DOE has investigated the 
effects of the different energy prices across the nation and different 
air-conditioning usage patterns. DOE estimates that 75 percent of all 
consumers purchasing a new typical air conditioner would either save 
money or would be negligibly impacted as a result of the 2006 proposed 
standard.\7\ In the case of a new typical heat pump, all consumers 
either would save money or be negligibly impacted.\8\
---------------------------------------------------------------------------

    \7\ Based on estimates supplied by ARI, 61 percent of all 
consumers purchasing a new typical air conditioner will either save 
money or will be negligibly impacted as a result of the 2006 
standard.
    \8\ Based on estimates supplied by ARI, 97 percent of all 
consumers purchasing a new typical heat pump will either save money 
or will be negligibly impacted as a result of the 2006 standard.
---------------------------------------------------------------------------

    DOE also investigated how these standards might affect low income 
consumers. On average, DOE estimates that it is likely that low income 
air conditioner and heat pump consumers would also save money over the 
life of the equipment as a result of the standard.
3. National Benefits
    The proposed standards would provide benefits to the nation. DOE 
estimates the standards would save approximately 3 quads of energy over 
25 years (2006 through 2030). This is equivalent to all the energy 
consumed by nearly 17 million American households in a single year. In 
2020, the proposed standards would avoid the construction of three 400 
megawatt coal-fired plants and twenty-seven 400 megawatt gas-fired 
plants. These energy savings would result in cumulative greenhouse gas 
emission reductions of approximately 24 million metric tons (Mt) of 
carbon, or an amount equal to that produced by approximately 2 million 
cars every year. Additionally, air pollution would be reduced by the 
elimination of approximately 70 thousand metric tons of nitrous oxides 
( NOX) from 2006 through 2030. In total, DOE estimates this 
proposed standard would have a net benefit to the nation's consumers of 
$2 billion over the period 2006 through 2030.\9\
---------------------------------------------------------------------------

    \9\ Net benefit assumes NAECA efficiency scenario. Net benefit 
would be $3 billion for Roll-up efficiency scenario.
---------------------------------------------------------------------------

C. Technological Feasibility

    There are central air conditioners and heat pumps in the market at 
the efficiency levels that would be prescribed by today's proposed 
rule. DOE, therefore, believes all of the proposed efficiency levels 
are technologically feasible.
    Pursuant to section 325(p)(2) of EPCA, and as discussed in the 
October 5, 2000 NOPR, DOE determined that 18 SEER is the maximum 
technologically feasible level (Max Tech Level) for cooling efficiency 
for all product classes and capacities covered by this rulemaking. 65 
FR 59593. The Max Tech Level for heating efficiency is 9.4 HSPF, which 
is the highest HSPF rating currently available in residential heat 
pumps.

D. General Discussion of Economic Justification Factors

    As noted earlier, section 325(o)(2)(B)(i) of EPCA requires DOE to 
consider seven factors in determining whether a conservation standard 
is economically justified.
1. Economic Impact on Manufacturers and Consumers
    DOE considered the economic impact on manufacturers and consumers 
as discussed in the October 5, 2000, NOPR (65 FR 59590, 59593) and the 
January 22, 2001 final rule (66 FR 7174-78, 7185-7191). As explained in 
Section III and Section V.B. of this SUPPLEMENTARY INFORMATION, today's 
proposal is based in part on changes in emphasis or weight that DOE, as 
a result of its reconsideration of the rulemaking record, now gives to 
certain aspects of its analysis of manufacturer and consumer impact.
2. Life-Cycle costs and Rebuttable Presumption
    DOE considered life-cycle costs (LCC), as discussed in the January 
22, 2001 final rule. 66 FR 7173, 7175, 7187-90. DOE calculated the 
installed price and operation and maintenance costs for a range of 
consumers around the nation to estimate the range in life-cycle cost 
benefits that consumers would expect to achieve due to new standards. 
DOE has made no change in its assumptions and analysis of life-cycle 
costs in proposing today's rule.
    As previously mentioned, NAECA established new criteria for 
determining whether a standard level is economically justified. Section 
325(o)(2)(B)(iii) of EPCA provides that if, according to the applicable 
test procedure, the increase in initial price of an appliance due to a 
conservation standard would repay itself to the consumer in energy 
savings in less than three years, then DOE is to presume that such 
standard is economically justified. This presumption of economic 
justification can be rebutted upon a proper showing.
    Using the reverse engineering manufacturing costs, the standards 
DOE proposes today for split heat pumps and packaged heat pumps can be 
shown to have satisfied the rebuttable presumption requirements in 
section 325(o)(2)(B)(iii). To avoid confusion, DOE points out that the 
statute requires DOE to use ``the applicable test procedure'' to 
calculate the payback periods for purposes of the rebuttable 
presumption. As explained in the October 5, 2000 NOPR, the annual 
cooling and heating energy consumption calculations based on DOE's test 
procedure are significantly greater than the weighted-average values 
from DOE's life-cycle cost analyses based on the 1997 Residential 
Energy Consumption Survey, used in other DOE analyses, including 
evaluation of consumer impacts. 65 FR 59596. For this reason, the 
payback periods presented in Section V of this portion of the preamble, 
entitled ``Analytical Results and Conclusions,'' are significantly 
longer than those calculated to determine whether the rebuttable 
presumption applies to these products.
    While the analysis requires DOE to presume that the standards 
adopted for split system and single package heat pumps are economically 
justified, it shows that split system air conditioners and single 
package air conditioners do not meet the standard for use of the 
rebuttable presumption of economic justification. Therefore, DOE does 
not

[[Page 38832]]

presume them to be economically justified. If the rebuttable 
presumption does not apply, DOE must perform additional analysis to 
determine economic justification. DOE has performed an analysis for all 
classes of central air conditioner and heat pump products that shows 
the standards proposed today are indeed economically justified.
3. Energy Savings
    EPCA requires DOE, in determining the economic justification of a 
standard, to consider the total projected energy savings that are 
expected to result directly from revised standards. DOE forecasted 
energy savings through the use of a national energy savings (NES) 
spreadsheet, as discussed in the October 5, 2000 NOPR. 65 FR 59590, 
59593. DOE relies on the same spreadsheets and assumptions for its 
estimate of the NES that would result from implementation of today's 
proposed standards.
    As discussed in the October 5, 2000 NOPR, section 325(o)(3)(B) of 
EPCA prohibits DOE from adopting a standard for a product if that 
standard would not result in ``significant'' energy savings. The energy 
savings for the standard levels DOE is proposing today are non-
trivial--indeed they are substantial--and therefore we consider them 
``significant'' within the meaning of section 325 of the Act.
4. Lessening of Utility or Performance of Products
    This factor cannot be quantified. In establishing classes of 
products, DOE has attempted to eliminate any degradation of utility or 
performance in the products covered by today's proposed rule. 
Attributes that affect utility include the product's ability to cool 
and dehumidify. In some applications, noise levels may also be an 
aspect of utility. Product size or configuration can also be considered 
utility if a change in size would cause the consumer to install the 
product in a location or in a manner inconsistent with the consumer's 
preferences.
5. Impact of Lessening of Competition
    This economic justification factor has two aspects: on the one 
hand, it assumes that there could be some lessening of competition as a 
result of standards; on the other hand, it directs the Attorney General 
to gauge the impact, if any, of that effect.
    In order to assist the Attorney General in making such a 
determination, DOE provided the Attorney General with copies of the 
October 5, 2000, NOPR and the TSD for review. The Attorney General's 
determination, in a letter dated December 4, 2000, was discussed in the 
preamble to the January 22 final rule. 66 FR 7176, 7199-200. The 
Attorney General's December 4, 2000, determination is included in the 
Appendix to this Supplemental Notice of Proposed Rulemaking.
    Pursuant to the President's Regulatory Review Plan, DOE invited the 
Attorney General to submit supplemental views on the January 22 final 
rule. The Department of Justice, in a letter dated April 5, 2001, 
provided brief written comments as to whether the final rule 
effectively removed their concerns regarding possible lessening of 
competition that could result from the October 5 proposed standards. 
The Department of Justice's April 5, 2001, letter is also included in 
the Appendix to this notice.
    The Department of Justice concluded that the 13 SEER standards for 
heat pumps and air conditioners in the January 22 final rule still 
presented anti-competitive concerns. More specifically, the Department 
of Justice concluded that while the final rule's exclusion of niche 
products might alleviate competitive problems for manufacturers of 
those products, the Department of Justice remained concerned about the 
impact of the final rule on manufacturers of standard equipment who 
could not make 13 SEER equipment that would fit into space-constrained 
sites. The Department of Justice also concluded the final rule would 
have a disproportionate impact on smaller manufacturers of heat pumps. 
Finally, the Department of Justice was of the view that the 13 SEER 
standard for air conditioners presents the same kinds of anti-
competitive problems as the 13 SEER standard for heat pumps, and urged 
DOE to adopt a 12 SEER standard for all products covered by the rule.
    As explained in Section III. of this SUPPLEMENTARY INFORMATION, 
DOE's decision today to propose a 12 SEER standard for most central air 
conditioners, with a corresponding 7.4 HSPF for central air 
conditioning heat pumps, is based primarily on its re-weighting of the 
burdens and benefits to manufacturers and consumers, rather than on the 
Department of Justice's views regarding the anti-competitive effect of 
the January 22 final rule. The Department of Justice's April 5 letter 
raises questions about the January 22 final rule's treatment of space-
constrained or niche products, but those questions do not require 
resolution given DOE's decision to propose a 12 SEER standard for all 
product classes except the through-the-wall product classes that DOE 
proposes today.
    DOE will submit this proposed rule to the Department of Justice for 
comment. DOE also invites the public to submit views and information 
regarding the potential anti-competitive impact of today's proposed 
rule.
6. Need of the Nation To Conserve Energy
    DOE recognizes that energy conservation benefits the nation in 
several important ways. Enhanced energy efficiency improves the 
nation's energy security, strengthens the economy, and reduces the 
environmental impacts of energy production. As part of the analysis 
supporting today's proposed rule, DOE estimated energy savings and the 
national consumer benefits and estimated reduction in emissions of 
pollutants and greenhouse gases resulting from those energy savings. 
See the October 5, 2000 NOPR for a discussion of how these standards 
affect energy savings and those benefits. 65 FR 59622-3. The amount of 
energy savings ultimately associated with a particular standard level 
is also affected by the effect of a given standard on competition and 
consumer cost. Selecting a standard level should take into account 
manufacturer--and therefore inevitably consumer--costs, in order to 
encourage robust competition and heightened introduction of newer, more 
efficient units into the inventory of units available for purchase and 
use by consumers.
7. Other Factors
    Section 325(o) of EPCA allows the Secretary of Energy, in 
determining whether a standard is economically justified, to consider 
any other factors that the Secretary deems to be relevant (42 U.S.C. 
6295(o)(2)(B)(i)(VI)). Under this provision, DOE considered the 
potential improvement to the reliability of the electrical system and 
health effects caused by foregone air conditioner purchases. These 
issues are discussed in Sections IV.B.3. above, as well as in the 
October 5, 2000 NOPR (65 FR 59605) and the January 22 final rule (66 FR 
7195). The Utility Impacts Analysis in Chapter 11 of the TSD also 
provides the technical analysis estimating the effects of adopting new 
efficiency standards on installed generation capacity.

E. Methodology Used in DOE Analyses

    For this proposed rule, the methodologies used to evaluate the 
seven factors described above are unchanged from those used in the

[[Page 38833]]

analyses that DOE relied on for the October 5 proposed rule and the 
January 22 final rule. DOE's methodology is discussed in the October 5, 
2000 NOPR (65 FR 59594-97) and the January 22 final rule (66 FR 7173-
74). Additionally, the TSD that accompanies this rulemaking provides a 
detailed description of every aspect of the various analytical 
methodologies used.

V. Analytical Results and Conclusions

A. Overview of Analytical Results

1. General
    Although DOE has accorded different weight to certain factors in 
proposing this rule, the underlying analyses, and the results derived 
from those analyses, are unchanged from those presented in the January 
22 final rule except for additional analysis of through-the-wall 
product classes. Briefly, DOE examined five standard levels. Table 3 
presents the trial standards levels analyzed and the corresponding 
efficiency level for each class of product. Trial Standard Level 5 is 
the Max Tech Level for each class of product. Trial Standard Level 4 
was the one DOE adopted for the standards set forth in the January 22 
final rule. Trial Standard Level 2 is the one DOE is now proposing.

               Table 3.--Trial Standards Levels for Central Air Conditioners and Heat Pumps (SEER)
----------------------------------------------------------------------------------------------------------------
                                       Split air         Packaged air                            Packaged heat
      Trial standard level           conditioners        conditioners      Split heat  pumps         pumps
----------------------------------------------------------------------------------------------------------------
1...............................                  11                  11                  11                  11
2...............................                  12                  12                  12                  12
3...............................                  12                  12                  13                  13
4...............................                  13                  13                  13                  13
5...............................                  18                  18                  18                  18
----------------------------------------------------------------------------------------------------------------

    For each trial standard examined, several different scenarios were 
analyzed consisting of variations on: (1) Electricity price and housing 
projections; (2) equipment efficiency distributions; (3) manufacturer 
cost estimates; and (4) societal discount rate. Electricity price and 
housing projections were based on three different forecasts from the 
Energy Information Agency's 2000 Annual Energy Outlook (AEO): (1) 
Reference Case, (2) High Growth Case, and (3) Low Growth Case. DOE 
analyzed three efficiency scenarios, each of which assumed a different 
efficiency distribution after new standards would take effect: (1) 
NAECA scenario, (2) Roll-up scenario, and (3) Shift scenario. See 
October 5, 2000, NOPR for an explanation of the three scenarios. 65 FR 
59596 (footnotes 10 through 12 and accompanying text). Under the 
standard levels in today's proposed rule, DOE believes that the NAECA 
scenario most closely represents the likeliest impact of the new 
standards, as explained in Chapter 8 of the TSD. DOE analyzed two 
manufacturer cost scenarios: (1) Based on reverse engineering 
estimates, and (2) based on ARI-provided mean cost estimates. For the 
reasons expressed in the preamble to the January 22 final rule, DOE 
expects manufacturer costs under the proposed standards will lie closer 
to the estimates produced through DOE's reverse engineering analysis, 
which lie between ARI's minimum and ARI's mean cost values. 66 FR 7177-
78. DOE assumed a societal discount rate of 7 percent for calculating 
net present value (NPV). However, a 3 percent value was investigated as 
an alternative scenario in accordance with the Office of Management and 
Budget's (OMB) Guidelines to Standardize Measures of Costs and Benefits 
and the Format of Accounting Statements.
2. Through-the-Wall Products
    In the October 5 proposed rule, DOE proposed to establish a 
separate product class for through-the-wall (TTW) products with a 
minimum 11 SEER for air conditioners and 7.1 HSPF for heat pumps, 
noting that they face particularly acute size constraints that make 
increasing their efficiency more difficult compared to conventional 
products, or even other space-constrained products. In comments 
received responding to the proposed standards, Carrier suggested that 
such a differential could open a loophole and cause TTW products to be 
broadly applied in traditionally non-TTW applications. (Carrier #92 at 
p. 9). National Comfort Products suggested that they did not believe 
that their product could attain even the proposed 11 SEER standard and 
that the DOE did not conduct sufficient analysis to support the 
proposed level. (NCP #77 at p.3, 4). However, Armstrong commented that 
they did believe their TTW products could attain 11 SEER, although they 
had concerns about their larger capacity products. (Armstrong #86 at p. 
3).
    In response to the comments, DOE conducted additional analysis on 
the cost and technical issues related to TTW products. The analysis is 
described in detail in Appendix L of the TSD and is summarized here.
    DOE performed a design assessment on two split TTW systems and one 
packaged TTW system. All systems are designed primarily for the 
replacement market and fit the physical definition of TTW equipment 
proposed in the October 5 proposed rule. The design assessment sought 
to identify the cost and efficiency impacts of employing commonly 
applied techniques to improve efficiency including reduction of air 
leakage and improvement in airflow, utilizing more efficient 
compression and fan motors, and increasing heat exchanger surface area. 
Emerging technologies and modulating technologies were not considered 
since they are not likely to be applied in conventional baseline 
equipment.
    The cost estimation for the analysis was based on a modified 
version of the reverse engineering cost models developed as part of 
this rulemaking for conventional products. The performance impacts of 
employing various design options were estimated utilizing a spreadsheet 
model populated with actual performance data and engineering 
guidelines.
    The analysis concluded that utilizing commonly applied technologies 
and designs, the most constrained TTW split-system analysis could 
increase its SEER rating from 10.0 SEER to as high as 11.4 SEER, and 
the packaged system analysis could increase its SEER rating from 9.7 
SEER to 10.6 SEER. Employing all improvements would add $106 and $129 
to the retail price of the equipment, respectively, comparable to the 
increases expected in conventional equipment moving to a 12 SEER 
standard.
    To explore the effects that more stringent standards for TTW 
products would have on consumers, DOE performed a life-cycle cost (LCC) 
analysis. The LCC analysis for TTW consumers used a subset of consumers 
identified as living in multi-family

[[Page 38834]]

dwellings, which are the predominate application for TTW products.
3. Other Space-Constrained Products
    Some products, other than through-the-wall products, face space-
constraints. However, as discussed in the October 5 NOPR, DOE proposed 
to conclude that it is economically justified and technologically 
feasible for all of those products to comply with the same efficiency 
requirements as conventional products. Comments received in response to 
that proposal focused mainly on the 13 SEER heat pump requirement. 
After reviewing the comments, DOE again proposes to conclude that a 12 
SEER requirement is the maximum technologically feasible and 
economically justified level for all space-constrained products except 
through-the-wall products. DOE is interested in receiving further 
comment on this issue.

B. Re-Weighting of Factors

1. Re-Weighting of Burdens on Consumers
    The record associated with this rulemaking includes numerous 
examples of discussions of the distributions, extent, and type of 
burdens on the typical consumer as well as on low-income consumers. 65 
FR 59623-59624 and 66 FR 7189-7190. In the January 22 notice of final 
rulemaking, DOE determined that most consumers, including low-income 
consumers, would likely benefit financially over the life of the 
equipment, but that all consumers would bear higher initial costs, and 
low-income consumers would not benefit financially as much as would the 
average consumer. DOE also recognized that the payback periods 
associated with the January 22 final rule are long, and that many 
consumers, though not the majority, would never recover the higher 
first costs in the form of savings in their utility bills. However, the 
previous Administration concluded that the national energy savings and 
the slight financial benefit to the typical consumer overrode any 
negative and maldistributed consumer impacts.
    Energy conservation is an important part of the Bush 
Administration's energy policy, but this Administration is particularly 
sensitive to burdens, and potential burdens, on consumers. The benefits 
of the standards adopted in the January 22 final rule would accrue to a 
much smaller fraction of consumers than is the case for recent 
standards for other products, particularly low income consumers. 
Today's proposed rule attempts to mitigate those burdens by reducing 
the increase in equipment cost compared to the 13 SEER requirements 
issued on January 22. Overall, the proposed standards would reduce the 
burdens on consumers while still providing substantial benefit to the 
nation in the form of energy savings.
2. Re-Weighting of Burdens on Manufacturers
    a. Cumulative Regulatory Burden. Although DOE included information 
on the cumulative burden of Federal and State regulations on air 
conditioner manufacturers in the TSD, DOE did not fully explain how it 
considered the results of its study in the preamble statement of basis 
for the January 22 final rule. See discussion in Section III of this 
SUPPLEMENTARY INFORMATION. DOE considers that a proposed standard is 
not economically justified if it contributes to an unacceptable 
cumulative regulatory burden. Section III.B.2.a. above provides a 
summary of the cumulative regulatory burden analysis contained in 
Section 8.6 of the TSD. DOE concluded that the burden on manufacturers 
due to all other recent or imminent federal regulations exceeds $479 
million. Revising the standard for air conditioner and heat pump 
efficiency would contribute up to an additional $300 million, bringing 
the total cumulative regulatory burden to as high as $779 million. In 
light of that heavy burden, DOE today is proposing standards that would 
reduce the expected financial burden on manufacturers from all new 
Federal and State regulations by $144 million compared to the 13 SEER 
final rule of January 22.
    b. Financial Burdens Associated with New Efficiency Standards. In 
addition to cumulative regulatory burden, both the TSD and public 
comments warn that too stringent efficiency standards would result in 
unacceptable financial burdens for some major manufacturers and could 
accelerate consolidation in the central air conditioning and heat pump 
industry. As explained in Section III.B.2.b. of this SUPPLEMENTARY 
INFORMATION, the 13 SEER standards in the January 22 final rule are 
projected by the TSD to result in a negative cash flow for the industry 
in the year preceding the new standards' enforcement. However, the 
standards would impose far greater financial burdens on manufacturers 
whose operating costs exceed the industry average. Those manufacturers 
typically engage in more research and development or provide additional 
sales or service support than do their lower operating cost 
competitors. The 12 SEER standard that DOE proposes today would reduce 
the maldistribution of financial impacts on manufacturers and would 
allow manufacturers to maintain a positive cash flow.
    c. Conclusions Regarding Conventional Products. EPCA specifies that 
any new or amended energy conservation standard for any type (or class) 
of covered product shall be designed to achieve the maximum improvement 
in energy efficiency which the Secretary determines is technologically 
feasible and economically justified (42 U.S.C. 6295(o)(2)(A)). In 
determining whether a standard is economically justified, the Secretary 
must determine whether the benefits of the standard exceed its burdens 
(42 U.S.C. 6295(o)(2)(B)(i)). The amended standard must ``result in 
significant conservation of energy'' (42 U.S.C. 6295(o)(3)(B)).
    In conducting its analysis, DOE considers the impacts of standards 
beginning with the Max Tech Level, i.e., Trial Standard Level 5 in this 
rulemaking. DOE then considers less efficient levels until it reaches 
the level which is technologically feasible and economically justified.
    To aid the reader in the discussion of the benefits and burdens of 
the trial standard levels, DOE includes a summary of the analysis 
results for all of the levels in Table 4.\10\ Table 4 presents a 
summary of quantitative analysis results for each trial standard level 
based on the assumptions DOE considers most plausible. These include 
manufacturing cost estimates from the reverse engineering, an 18.4-year 
equipment lifetime with one compressor replacement at 14 years, and 
electricity prices based on the AEO2000 Reference Case.
---------------------------------------------------------------------------

    \10\ All cumulative effects that are not monetary are not 
discounted. Monetary effects are discounted to 1998 dollars.

[[Page 38835]]



                                  Table 4.--Summary of Quantitative Results \1\
----------------------------------------------------------------------------------------------------------------
                                                 Trial std 1  Trial std 2  Trial std 3  Trial std 4  Trial std 5
----------------------------------------------------------------------------------------------------------------
Primary Energy Saved (quads)...................         1.7          3.0          3.5          4.2          8.8
Generation Capacity Offset (GW) \2\............         6.5         10.6         12.4         15.5         28.8
NPV ($billion):
    7% Discount Rate...........................           2            2            1            1          (10)
Industry Impacts (million $): \3 5\
    Cumulative Change in Industry NPV..........         (62)        (179)        (199)        (300)
    Differential impact between Industry Sub-            75          238          261          429
     groups\4\.................................
    Cumulative Regulatory Burden on Industry...       (>541)       (>658)       (>678)       (>779)
    Minimum net cash flow......................          62           31           18           (3)
Life-Cycle Cost Savings ($): \5\
    Split AC...................................          75          113          113          113         (137)
    Packaged AC................................          78          163          163           29         (276)
    Split HP...................................         209          365          372          372          (41)
    Packaged HP................................         207          421          353          353          166
Equipment Price Increase ($):
    Split AC...................................          91          213          213          335          754
    Packaged AC................................          89          158          158          425          859
    Split HP...................................          55          144          332          332         1039
    Packaged Heat Pump.........................          92          149          435          435          985
Fraction of all Consumers with Net LCC Losses
 >2% (%):
    Split AC...................................           2           25           25           39           68
    Packaged AC................................           1            9            9           52           73
    Split HP...................................           0            0            6            6           57
    Packaged Heat Pump.........................           0            0           12           12           48
Fraction of Low Income Consumers with Net LCC
 Losses >2% (%):
    Split AC...................................           5           34           34           50           77
    Packaged AC................................           2           14           14           61           80
    Split HP...................................           0            0           12           12           75
    Packaged Heat Pump.........................           0            0           20           20           66
----------------------------------------------------------------------------------------------------------------
\1\ Parentheses indicate negative (-) values. Unless otherwise noted, Trial Standard Levels 1-3 refer to the
  NAECA efficiency scenario, and Trial Standard Levels 4 and 5 refer to the Roll-up efficiency scenario.
\2\ Values based on NAECA efficiency scenario.
\3\ Not calculated at Trial Standard Level 5.
\4\ The benefit accruing to the Higher Operating Cost subgroup compared to the Lower Operating Cost subgroup.
\5\ Negative values indicate LCC increases.

    In addition to the quantitative results, DOE also considers other 
burdens and benefits that affect economic justification. The potential 
to improve the reliability of the electricity system is the major 
benefit DOE has not quantified explicitly. In areas where the 
occurrence of blackouts (and brownouts) can be reduced through 
expansion of system capacity, the economic value of avoided blackouts 
associated with reductions in peak load cannot exceed the value of the 
avoided capacity expansion. That value is already captured in DOE's 
analysis as savings in consumer utility bills. However, in areas that 
do not expect to be able to maintain adequate capacity reserves, the 
value of avoided blackouts associated with reductions in peak demand 
can far exceed the normal costs of capacity expansion.\11\
---------------------------------------------------------------------------

    \11\ For instance, if capacity-related blackouts cost a region 
$1 billion, society would be willing to pay up to $1 billion to 
prevent them. If those blackouts can be prevented through either a 
capacity expansion or a reduction in peak demand, and the new 
capacity would cost $100 million, the value of the reduction in peak 
demand can be no more than $100 million. If the region is short on 
capacity and cannot add new capacity quickly, however, the same 
reduction in peak demand then can equal the value of the avoided 
blackout ($1 billion) since there is no feasible alternative.
---------------------------------------------------------------------------

    DOE also recognizes that the adopted standards could result in 
additional unquantifiable burdens. These include a possible increase in 
health problems caused by consumers foregoing air conditioner 
purchases, a possible reduction in the ability of the product to 
dehumidify, a possible lessening of competition, and possible 
difficulty in installing the new baseline products into replacement 
applications. Section IV of the preamble to the January 22 final rule 
discusses DOE's response to comments regarding benefits and burdens.
    First DOE considered Trial Standard Level 5, the Max Tech Level for 
each of four classes of products, representing uniform 18 SEER 
requirements. The manufacturing cost DOE assumes for Trial Standard 
Level 5 is equal to 15 SEER equipment, although DOE would expect that 
assumption to understate the cost and price of the product. Trial 
Standard Level 5 would likely save 8.6 quads of energy between 2006 and 
2030 which DOE considers significant. The energy savings through 2020 
would result in the avoidance of approximately 29 gigawatts (GW) of 
installed generation capacity in 2020. For comparison, the generating 
capacity is equivalent to roughly 73 large, 400 megawatt, power plants, 
and reduced emissions would range up to 63 Mt of carbon equivalent and 
up to 184 thousand metric tons (kt) of NOX.\12\
---------------------------------------------------------------------------

    \12\ Generating capacity, carbon and NOX reductions 
are based on NAECA efficiency scenario.
---------------------------------------------------------------------------

    At Trial Standard Level 5, the average consumer would experience an 
increase in life-cycle cost. Compared to today's standards, purchasers 
of split central air-conditioners, the predominate class of central air 
conditioner with 65 percent of the sales of central air conditioners 
and heat pumps, would most likely lose in excess of $137 over the life 
of the appliance. Purchasers of split heat pumps, the predominate class 
of heat pump, would most likely lose in excess of $41. These life-cycle 
cost estimates represent lower bounds to the actual costs because they 
do not include the additional price the consumer would pay over the 
price of a 15 SEER product, which would increase the life-cycle cost 
considerably. Furthermore,

[[Page 38836]]

for the nation as a whole, Trial Standard Level 5 would result in a net 
cost in excess of $10 billion in NPV. DOE did not calculate 
manufacturer impacts at this trial standard level, determining based on 
preliminary evaluation that they would be severe and unacceptable.
    DOE proposes to conclude that at Trial Standard Level 5, the 
benefits of energy savings, generating capacity reductions and emission 
reductions would be outweighed by the negative economic impacts to the 
nation, to the vast majority of consumers and to the manufacturers. 
Consequently, DOE proposes to determine that Trial Standard Level 5, 
the Max Tech Level, is not economically justified.
    Next, DOE considered Trial Standard Level 4. This level specifies 
13 SEER equipment for all product classes. In considering Trial 
Standard Level 4, DOE assumed the Roll-up efficiency scenario and 
reverse engineering cost estimates to be the most probable. (See 
Section 8.4.8 of the TSD for the reasons DOE considers the Roll-up 
efficiency scenario most probable above Trial Standard Level 3 and the 
NAECA efficiency scenario most probable at Trial Standard Levels 1, 2, 
and 3. See Section 7.2.2.5 of the TSD for the current efficiency 
distribution for each product class and for the assumed efficiency 
distributions after new standards.) Primary energy savings between 2006 
and 2030 would likely be 4.2 quads, which DOE considers significant. 
The estimated energy savings through 2020 would result in avoidance of 
approximately 15.5 GW in installed generating capacity in 2020. For 
comparison, the generating capacity is equivalent to avoiding the need 
for 39 large 400 megawatt power plants, and reduced emissions would 
range up to 33 Mt of carbon equivalent and up to 85 kt of 
NOX.\13\
---------------------------------------------------------------------------

    \13\ Generating capacity, carbon, and NOX reductions 
are based on NAECA efficiency scenario.
---------------------------------------------------------------------------

    At this standard level, the average purchaser of a split system air 
conditioner, the predominate class with 65 percent of all shipments, 
would see the installed price of $2236 rise to $2571, an increase of 
$335. Lower utility bills from the energy savings would repay this 
increase in 11.3 years and produce a total saving with a net present 
value of $113 over the 18.4 year life of the product. The average 
purchaser of a single package air conditioner, which represents 10 
percent of all shipments, would see the average installed price of 
$2607 rise to $3032, an increase of $425. Lower utility bills from the 
energy savings would repay this increase in 14.5 years and produce a 
total saving with a net present value of $29 over the 18.4 year life of 
the product.
    The average purchaser of a split system heat pump, which represents 
22 percent of all shipments, would see the average installed price of 
$3668 rise to $4000, an increase of $332. Lower utility bills from the 
energy savings would repay this increase in 6.4 years and produce a 
total saving with a net present value of $372 over the 18.4 year life 
of the product. The average purchaser of a single package heat pump, 
which represents 4 percent of all shipments, would see the average 
installed price of $3599 rise to $4034, an increase of $435. Lower 
utility bills from the energy savings would repay this increase in 8.4 
years and produce a total saving with a net present value of $353 over 
the 18.4 year life of the product. Trial Standard Level 4 would lower 
peak electricity demand compared to the base case. That would allow 
utility service areas to either avoid new capacity or, to the extent 
that peak loads contribute to reliability problems, improve system 
reliability.
    A measure of an efficiency standard's economic benefit to the 
nation is the increase in net present value, which is the difference in 
total cost, both initial cost and discounted operating cost, between 
the base case (without a new standard) and the case with a new 
standard. For Trial Standard Level 4, the increase in national net 
present value would be $1 billion.\14\
---------------------------------------------------------------------------

    \14\ Under the NAECA efficiency scenario, the increase in 
national net present value would be zero.
---------------------------------------------------------------------------

    Since DOE expects the Roll-up efficiency scenario to result from 
standards adopted at Trial Standard Level 4, the burdens of Trial 
Standard Level 4 on manufacturers are likely to be severe. Not only 
does DOE expect the average loss in industry NPV to be around 20 
percent, but impacts on most manufacturers would reach almost 30 
percent. Their long term drop in return on investment and short term 
drop in cash flow suggest that standards adopted at Trial Standard 
Level 4 could accelerate the consolidation trend, possibly resulting in 
fewer choices for consumers and in a slowing of the pace of innovation 
well into the future. Furthermore, the cumulative impact on the 
industry of all new Federal and State regulations would exceed $779 
million.
    While the average consumer purchasing a 13 SEER air conditioner or 
heat pump would experience a net saving over the lifetime of the 
product, some households would experience net costs exceeding 2 percent 
of the total life-cycle cost of today's baseline units. Thus, 39 
percent of the households with split system air conditioners, 52 
percent with single package air conditioners, 6 percent with split 
system heat pumps and 12 percent with single package heat pumps would 
experience a net cost. The percentage of low-income consumers who would 
experience net costs exceeding 2 percent of the total life-cycle cost 
of today's baseline units is greater than that of the average 
household. Thus, 50 percent of low-income households with split system 
air conditioners, 61 percent with single package air conditioners, 12 
percent with split system heat pumps and 20 percent with single package 
heat pumps would experience a net cost. Also, the possibility that 
consumers would incur substantial installation costs is great because 
13 SEER equipment is not likely to fit in the same space as current 10 
SEER equipment. In light of the higher purchase cost increase 
experienced by all consumers and the percentage of households, which 
experience life-cycle cost increases, consumer burdens, in particular 
those for low-income households, are especially acute under Trial 
Standard Level 4.
    DOE proposes to conclude that at Trial Standard Level 4, the 
benefits of energy savings, generating capacity and emission avoidance, 
possible improvements in electric system reliability, and net benefit 
to the nation's consumers would be outweighed by the maldistribution of 
consumer benefits, the potential increase in installation costs for 
some consumers related to installing potentially larger equipment, and 
the cost to manufacturers taking into account the cumulative regulatory 
burden. Trial Standard Level 4 introduces the serious concern that 
prospective owners of air conditioning heat pump systems would instead 
purchase less costly air conditioner resistance heater combinations 
because of the substantial purchase price differential between heat 
pumps and air conditioners. As discussed in the January 22 notice of 
final rulemaking (66 FR 7196), the energy savings from the more 
efficient heat pumps would be eliminated if only a small fraction of 
heat pump owners (4 percent) switched to resistance heating. Those 
households residing in manufactured housing, which is often shipped 
from the factory without an air conditioning system but with a 
resistance furnace, might be inclined to simply add a lower cost air 
conditioner and retain the resistance

[[Page 38837]]

furnace instead of replacing the resistance furnace with a heat pump. 
In short, the large financial burdens of Trial Standard Level 4 are not 
outweighed by the expected financial benefits. Other potential burdens 
include possible health effects caused indirectly by foregone air 
conditioning purchases and possible lessening of competition. 
Consequently, DOE proposes to determine that Trial Standard Level 4 is 
not economically justified.
    Next, DOE considered Trial Standard Level 3. This level specifies 
12 SEER equipment for air conditioners and 13 SEER equipment for heat 
pumps. In considering Trial Standard Level 3, DOE assumed the NAECA 
efficiency scenario and reverse engineering cost estimates to be the 
most probable. (See Section 8.4.8 of the TSD for the reasons DOE 
considers the Roll-up efficiency scenario most probable at Trial 
Standard Levels 4 and 5 and the NAECA efficiency scenario most probable 
at Trial Standard Levels 1, 2, and 3.) Primary energy savings between 
2006 and 2030 would likely be 3.5 quads, which DOE considers 
significant. The energy savings through 2020 would result in avoidance 
of approximately 12.4 GW in installed generating capacity in 2020. For 
comparison, the generating capacity is equivalent to avoiding the need 
for 31 large 400 megawatt power plants, and reduced emissions would 
range up to 28 Mt of carbon equivalent and up to 84 kt of 
NOX.\15\
---------------------------------------------------------------------------

    \15\ Generating capacity, carbon, and NOX reductions 
are based on NAECA efficiency scenario.
---------------------------------------------------------------------------

    At this standard level, the average purchaser of a split system air 
conditioner, the predominate class with 65 percent of all shipments, 
would see the installed price of $2236 rise to $2449, an increase of 
$213. Lower utility bills from the energy savings would repay this 
increase in 9.8 years and produce a total saving with a net present 
value of $113 over the 18.4 year life of the product. The average 
purchaser of a single package air conditioner, which represents 10 
percent of all shipments, would see the average installed price of 
$2607 rise to $2765, an increase of $158. Lower utility bills from the 
energy savings would repay this increase in 7.5 years and produce a 
total saving with a net present value of $163 over the 18.4 year life 
of the product.
    The average purchaser of a split system heat pump, which represents 
22 percent of all shipments, would see the average installed price of 
$3668 rise to $4000, an increase of $332. Lower utility bills from the 
energy savings would repay this increase in 6.4 years and produce a 
total saving with a net present value of $372 over the 18.4 year life 
of the product. The average purchaser of a single package heat pump, 
which represents 4 percent of all shipments, would see the average 
installed price of $3599 rise to $4034, an increase of $435. Lower 
utility bills from the energy savings would repay this increase in 8.4 
years and produce a total saving with a net present value of $353 over 
the 18.4 year life of the product. Trial Standard Level 3 would lower 
peak electricity demand compared to the base case. That would allow 
utility service areas to either avoid new capacity or, to the extent 
that peak loads contribute to reliability problems, improve system 
reliability. The increase in national net present value would be $1 
billion.\16\
---------------------------------------------------------------------------

    \16\ Under the Roll-up efficiency scenario, the increase in 
national net present value would be $2 billion.
---------------------------------------------------------------------------

    Since DOE expects the NAECA efficiency scenario to result from 
standards adopted at Trial Standard Level 3, the burdens of Trial 
Standard Level 3 on manufacturers are likely to be less severe than at 
Trial Standard Level 4. DOE expects the average loss in industry NPV to 
be around 11 percent, but impacts on most manufacturers would be around 
17 percent. Their long term drop in return on investment and short term 
drop in cash flow suggest that standards adopted at Trial Standard 
Level 3 could accelerate the consolidation trend, possibly resulting in 
fewer choices for consumers and in a slowing of the pace of innovation 
well into the future. Furthermore, the cumulative impact on the 
industry of all new Federal and State regulations would exceed $678 
million.
    Similar to the concern over Trial Standard Level 4, Trial Standard 
Level 3 raises the serious concern that prospective owners of air 
conditioning heat pump systems would purchase less costly air 
conditioner resistance heater combinations. In this case there is a 
potential loss of energy savings because of the lower standards for air 
conditioners compared to heat pumps. which could eliminate all energy 
savings from the more efficient heat pumps if only a small fraction of 
heat pump owners (4 percent) switched to resistance heating. Trial 
Standard Level 3 poses a serious concern regarding potential anti-
competitive effects because the size and cost of the higher efficiency 
heat pumps could reduce competition between manufacturers of heat pumps 
and manufacturers of resistance heating and other lower cost heating 
systems.
    DOE proposes to conclude that, at Trial Standard Level 3, the 
benefits of energy savings, generating capacity and emission avoidance, 
possible improvements in electric system reliability, and net benefit 
to the nation's consumers would be outweighed by the maldistribution of 
consumer benefits and manufacturer costs, the likelihood of higher 
installation costs resulting from potentially larger equipment, and the 
net impact on the industry in light of the cumulative regulatory 
burden. The most serious concern is the possibility of equipment 
switching that would likely substantially reduce the calculated energy 
savings, drastically reducing the potential benefits. Other possible 
burdens include lessening of competition and health effects caused by 
forgone air conditioner purchases. Consequently, DOE proposes to 
determine that Trial Standard Level 3 is not economically justified.
    Next, DOE considered Trial Standard Level 2. This level specifies 
12 SEER equipment for all product classes. In considering Trial 
Standard Level 2, DOE assumed the NAECA efficiency scenario and reverse 
engineering cost estimates to be the most probable. Primary energy 
savings between 2006 and 2030 would likely be 3 quads, which DOE 
considers significant. The energy savings through 2020 would result in 
avoidance of approximately 10.6 GW in installed generating capacity in 
2020. For comparison, the generating capacity is equivalent to avoiding 
the need for 27 large 400 megawatt power plants, and reduced emissions 
would range up to 24 Mt of carbon equivalent and up to 73 kt of 
NOX.\17\
---------------------------------------------------------------------------

    \17\ Generating capacity, carbon, and NOX reductions 
are based on NAECA efficiency scenario.
---------------------------------------------------------------------------

    At this standard level, the average purchaser of a split system air 
conditioner, the predominate class with 65 percent of all shipments, 
would see the installed price of $2236 rise to $2449, an increase of 
$213. Lower utility bills from the energy savings would repay this 
increase in 9.8 years and produce a total saving with a net present 
value of $113 over the 18.4 year life of the product. The average 
purchaser of a single package air conditioner, which represents 10 
percent of all shipments, would see the average installed price of 
$2607 rise to $2765, an increase of $158. Lower utility bills from the 
energy savings would repay this increase in 7.5 years and produce a 
total saving with a net

[[Page 38838]]

present value of $163 over the 18.4 year life of the product.
    The average purchaser of a split system heat pump, which represents 
22 percent of all shipments, would see the average installed price of 
$3668 rise to $3812, an increase of $144. Lower utility bills from the 
energy savings would repay this increase in 3.9 years and produce a 
total saving with a net present value of $365 over the 18.4 year life 
of the product. The average purchaser of a single package heat pump, 
which represents 4 percent of all shipments, would see the average 
installed price of $3599 rise to $3748, an increase of $149. Lower 
utility bills from the energy savings would repay this increase in 4 
years and produce a total saving with a net present value of $421 over 
the 18.4 year life of the product. Trial Standard Level 2 would lower 
peak electricity demand compared to the base case. That would allow 
utility service areas to either avoid new capacity or, to the extent 
that peak loads contribute to reliability problems, improve system 
reliability. The increase in national net present value would be $2 
billion, which represents the highest level for all the standard levels 
considered.\18\
---------------------------------------------------------------------------

    \18\ Under the Roll-up efficiency scenario, the increase in 
national net present value would be $3 billion.
---------------------------------------------------------------------------

    Since DOE expects the NAECA efficiency scenario to result from 
standards adopted at Trial Standard Level 2, the burdens of Trial 
Standard Level 2 on manufacturers are likely to be moderate. DOE 
expects the average loss in industry NPV to be around 10 percent, with 
impacts on most manufacturers around 16 percent. Their long term drop 
in return on investment and short term drop in cash flow are moderate, 
suggesting that standards adopted at Trial Standard Level 2 would not 
accelerate the consolidation trend, and could result in more choices 
for consumers and raise the pace of innovation. The cumulative impact 
on the industry of all new Federal and State regulations would exceed 
$658 million.
    While the average consumer purchasing a 12 SEER air conditioner or 
heat pump would experience a net saving over the lifetime of the 
product, some households would experience net costs exceeding 2 percent 
of the total life-cycle cost of today's baseline units. Thus, 25 
percent of the households with split system air conditioners and 9 
percent with single package air conditioners would experience a net 
cost. No households with heat pumps would experience a net cost. The 
percentage of low-income consumers who would experience net costs 
exceeding 2 percent of the total life-cycle cost of today's baseline 
units is greater than that for an average household. Thus, 34 percent 
of low-income households with split system air conditioners and 14 
percent with single package air conditioners would experience a net 
cost. No low-income households with heat pumps would experience a net 
cost. Also, the possibility that consumers would incur substantial 
installation costs is less than that with a 13 SEER standard because 12 
SEER equipment is more likely to fit in the same space as current 10 
SEER equipment. In light of the moderate purchase cost increase 
experienced by all consumers, the percentage of households, in 
particular low-income households, which experience life-cycle cost 
increases, consumer burdens are less severe under Trial Standard Level 
2.
    After carefully reconsidering the analyses and comments, and 
adjusting the weight given to consumer impacts and cumulative 
regulatory burden in the assessment of the benefits and burdens, DOE is 
proposing to amend the energy conservation standards for central air 
conditioners and central air conditioning heat pumps at Trial Standard 
Level 2. DOE proposes to conclude this standard saves a significant 
amount of energy and is technologically feasible and economically 
justified. In determining economic justification, DOE proposes to 
conclude that the benefits of energy savings, the projected amount of 
avoided power plant capacity or improvement in system reliability that 
accompanies expected reduction in peak demand, consumer life-cycle cost 
savings, national net present value increase, and emission reductions 
resulting from the standards outweigh the burdens. The burdens include 
the loss of manufacturer net present value, taking into account the 
cumulative regulatory burden and annual cash flow, increases in life-
cycle cost for some users of products covered by today's proposed rule, 
any possible increase in health problems caused by consumers foregoing 
air conditioner purchases, any possible reduction in the ability of the 
product to dehumidify, any possible lessening of competition, and any 
possible difficulty in installing the new baseline products into 
replacement applications.

D. Conclusions Regarding Space-Constrained Products

    If a 12 SEER minimum requirement for air conditioners and heat 
pumps is implemented, as proposed, DOE's analysis suggests that of all 
potential space-constrained products, only those with through-the-wall 
condensers need special consideration. The TSD contains a new appendix 
(Appendix L) describing the results of our recent re-evaluation of 
those products. The results of that analysis are summarized in Section 
V.A.2 above. They demonstrate that split TTW equipment can attain 10.9 
SEER using designs and technologies that are commonly applied or 
available, with price impacts similar to those that conventional 
equipment would experience in meeting the proposed 12 SEER standard. 
The packaged equipment analyzed was demonstrated to be capable of 
attaining only a 10.6 SEER rating, although comments received indicate 
that one manufacturer of packaged TTW equipment, Armstrong, expects 
their equipment to be capable of attaining 11 SEER. (Armstrong No. 86 
at p.3).
    Based on this evaluation, DOE is proposing to establish new product 
classes for products that have through-the-wall condensers and are 
intended for replacement applications. The new classes would be 
required to meet minimum efficiencies lower than those of the other 
classes: 10.9 SEER and 7.1 HSPF for through-the-wall air conditioner 
and heat pump split-systems, and 10.6 SEER and 7.0 HSPF for through-
the-wall air conditioner single-package systems. DOE's analysis 
suggests those products can attain these levels without substantial 
redesign or price increases that would result in a loss of market share 
to conventional products. Also, the life-cycle cost analysis confirms 
that, on average, consumers of split TTW equipment would not incur an 
increase in life-cycle cost, and that consumers of packaged TTW 
equipment would incur an increase of $52 over the life of the 
equipment. In no case would any consumer of split TTW products be 
expected to incur life-cycle costs greater than 2 percent of the total 
life-cycle cost, and only 17 percent of consumers of packaged TTW 
equipment would be expected to incur cost increases greater than 2 
percent of the total life-cycle cost.
    DOE proposes to conclude that standard levels higher than 10.9 SEER 
(split TTW) and 10.6 SEER (packaged TTW) are not technologically 
feasible. DOE's analysis on three TTW models suggests that those 
products could attain efficiencies as high as 11.4 SEER using design 
options that would likely be economically justified. However, the 
results are not conclusive and cannot be confidently applied to all TTW

[[Page 38839]]

products. DOE's analysis does not provide enough evidence to convince 
us that levels higher than 10.9 SEER (10.6 SEER for packaged TTW) will 
be technologically feasible during the five year period during which 
manufacturers would prepare to meet the new requirements. DOE's 
analysis does indicate that opportunities for efficiency improvement do 
exist, and that manufacturers of those products should continue to 
investigate those opportunities.
    A serious concern that DOE has considered is that the lower TTW 
standards could encourage purchasers of conventional equipment to shift 
to TTW products, undermining the benefits of the 12 SEER standard for 
conventional products. DOE is therefore proposing that the new through-
the-wall classes would consist only of products manufactured before 
July 26, 2010. See proposed definition of ``through-the-wall air 
conditioner and heat pump.'' Thus, the classes would exist only for a 
period of four years following the establishment of the new standards. 
During that time, the availability of suitable high-efficiency 
components will likely increase and the manufacturers of through-the-
wall products would be able to investigate options for meeting the more 
stringent 12 SEER level. Both will make it easier for through-the-wall 
products to attain the 12 SEER minimum efficiency required of other 
products, thereby making 12 SEER a technologically feasible and 
economically justified level. The sunset provision will help to ensure 
that other manufacturers will not make the investment required to 
market through-the-wall products heavily for conventional applications 
during the four year period. It will also limit the time during which 
lower efficiency TTW equipment is installed, ensuring that additional 
energy savings associated with the 12 SEER level are realized in a 
certain time period.
    To further limit the application of the through-the-wall class, 
products in these classes may not exceed 30,000 BTU/hr in cooling 
capacity, may not contain special weatherization features that would 
allow them to be installed totally outdoors, and must be marked for 
installation only through an exterior wall. DOE also proposes limiting 
the size of the area used for condenser air exchange to attempt to 
limit these classes to those products intended primarily for 
replacement applications.
    No other new product classes are proposed since all other products 
types of which we are aware have demonstrated the ability to compete in 
the market at the 12 SEER level.

VI. Procedural Issues and Regulatory Review

A. Review Under the National Environmental Policy Act

    DOE prepared an Environmental Assessment (EA) (DOE/EA-1352) 
available from: U.S. Department of Energy, Office of Energy Efficiency 
and Renewable Energy, Forrestal Building, Mail Station EE-1, 1000 
Independence Avenue, SW, Washington, DC 20585-0121, (202) 586-0854. DOE 
found the environmental effects associated with various standard 
efficiency levels for central air conditioners and heat pumps to be not 
significant, and therefore DOE published in the Federal Register (66 FR 
7201), A Finding of No Significant Impact (FONSI) pursuant to the 
National Environmental Policy Act of 1969 (NEPA), 42 U.S.C. 4321 et 
seq., the regulations of the Council of Environmental Quality (40 CFR 
Parts 1500-1508), and DOE's regulations for compliance with NEPA (10 
CFR Part 1021).

B. Review Under Executive Order 12866

    Today's regulatory action has been determined to be an 
``economically significant regulatory action'' under Executive Order 
12866, ``Regulatory Planning and Review.'' 58 FR 51735 (October 4, 
1993). Accordingly, today's action was subject to review under the 
Executive Order by the Office of Information and Regulatory Affairs 
(OIRA) of the Office of Management and Budget.
    The draft submitted to OIRA and other documents submitted to OIRA 
for review have been made a part of the rulemaking record and are 
available for public review in DOE's Freedom of Information Reading 
Room, 1000 Independence Avenue, SW, Washington, DC 20585, between the 
hours of 9 a.m. and 4 p.m., Monday through Friday, telephone (202) 586-
3142.
    The October 5, 2000, NOPR contained a summary of the Regulatory 
Analysis which focused on the major alternatives considered in arriving 
at the approach to improving the energy efficiency of consumer 
products. 65 FR 59627-29. The alternatives considered in DOE's analysis 
are consumer product labeling, consumer education, prescriptive 
standards, consumer tax credits, consumer rebates, manufacturer tax 
credits, voluntary efficiency targets, low income subsidy, mass 
government purchases, and performance standards. The reader is referred 
to the complete draft ``Regulatory Impact Analysis,'' which is 
contained in the TSD, available as indicated at the beginning of this 
notice or from the contact person named at the beginning of this 
notice. The TSD provides: (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 national economic impacts of the proposed 
standard.

C. Review Under the Regulatory Flexibility Act

    The Regulatory Flexibility Act, 5 U.S.C. 601 et seq., requires that 
a Federal agency prepare a regulatory flexibility analysis for any rule 
for which the agency is required to publish a general notice of 
proposed rulemaking. Such an assessment of the impact of regulations on 
small businesses is not required if the agency certifies that the rule 
would not, if promulgated, have a significant economic impact on a 
substantial number of small entities (5 U.S.C. 605(b)). To be 
categorized as a ``small'' air conditioning and warm air heating 
equipment manufacturer, a firm must employ no more than 750 employees.
    In the October 5, 2000 NOPR, DOE discussed the potential impacts on 
small businesses of the October 5 proposed rule (corresponding to Trial 
Standard Level 3), and certified that the proposed standard levels 
would not have a significant economic impact on a substantial number of 
small entities. 65 FR 59629-30. DOE reported that nearly all small 
businesses engaged in the manufacture of central air conditioners and 
heat pumps produce products that DOE has called ``niche'' products. To 
avoid adversely impacting manufacturers of niche products, DOE proposed 
a separate product class for through-the-wall equipment, much of which 
is manufactured by small manufacturers. See 65 FR 59609-11. In the 
preamble to the January 22 final rule, DOE addressed comments regarding 
the impacts more stringent standards might have on the availability of 
niche products, and although the final rule adopted the higher Trial 
Standard Level 4 standards, DOE deferred setting an amended standard 
for niche products. 66 FR 7175, 7196-97. Because the final rule 
excluded most products made by small manufacturers, DOE affirmed its 
certification.
    Today DOE is proposing energy conservation standards for central 
air conditioners and heat pumps that correspond to Trial Standard Level 
2. Because of severe size constraints, DOE is again proposing a 
separate product class for through-the-wall equipment,

[[Page 38840]]

with a lower SEER. No other provisions for niche products are being 
proposed.
    DOE certifies, based on its analysis and public comments, that 
today's proposed rule would not have a significant impact on a 
substantial number of small entities. Accordingly, DOE has not prepared 
a regulatory flexibility analysis. This certification is based on an 
assessment of the impact the proposed standards would have on small 
entities that would be directly affected by their implementation, which 
is all the Regulatory Flexibility Act requires. The assertion by ARI, 
in its petition for consideration, that DOE is required to assess the 
indirect effects of proposed standards is contrary to established case 
law interpreting the Act.

D. Review Under the Paperwork Reduction Act

    No new information or record keeping requirements are imposed by 
this rulemaking. Accordingly, no Office of Management and Budget 
clearance is required under the Paperwork Reduction Act. 44 U.S.C. 3501 
et seq.

E. Review Under Executive Order 12988

    With respect to the review of existing regulations and the 
promulgation of new regulations, Section 3(a) of Executive Order 12988, 
``Civil Justice Reform,'' 61 FR 4729 (February 7, 1996), imposes on 
Executive agencies the general duty to adhere to the following 
requirements: (1) Eliminate drafting errors and ambiguity; (2) write 
regulations to minimize litigation; and (3) provide a clear legal 
standard for affected conduct rather than a general standard and 
promote simplification and burden reduction. With regard to the review 
required by section 3(a), section 3(b) of Executive Order 12988 
specifically requires that Executive agencies make every reasonable 
effort to ensure that the regulation: (1) Clearly specifies the 
preemptive effect, if any; (2) clearly specifies any effect on existing 
Federal law or regulation; (3) provides a clear legal standard for 
affected conduct while promoting simplification and burden reduction; 
(4) specifies the retroactive effect, if any; (5) adequately defines 
key terms; and (6) addresses other important issues affecting clarity 
and general draftsmanship under any guidelines issued by the Attorney 
General. Section 3(c) of Executive Order 12988 requires Executive 
agencies to review regulations in light of applicable standards in 
section 3(a) and section 3(b) to determine whether they are met or it 
is unreasonable to meet one or more of them. DOE reviewed today's 
proposed rule under the standards of section 3 of the Executive Order 
and determined that, to the extent permitted by law, this proposed rule 
meets the relevant standards.

F. Review Under Executive Order 12630

    DOE has determined pursuant to Executive Order 12630, 
``Governmental Actions and Interference with Constitutionally Protected 
Property Rights,'' 52 FR 8859 (March 18, 1988), that this proposed 
regulation would not result in any takings that might require 
compensation under the Fifth Amendment to the United States 
Constitution.

G. Review Under Executive Order 13132

    Executive Order 13132, ``Federalism,'' 64 FR 43255 (August 4, 1999) 
imposes certain requirements on agencies formulating and implementing 
policies or regulations that preempt State law or that have federalism 
implications. Agencies are required to examine the constitutional and 
statutory authority supporting any action that would limit the 
policymaking discretion of the States and carefully assess the 
necessity for such actions. Agencies also must have an accountable 
process to ensure meaningful and timely input by State and local 
officials in the development of regulatory policies that have 
federalism implications. DOE published its intergovernmental 
consultation policy on March 14, 2000. 65 FR 13735. DOE has examined 
today's proposed rule and has determined that it would not have a 
substantial direct effect on the States, on the relationship between 
the national government and the States, or on the distribution of power 
and responsibilities among the various levels of government. State 
regulations that may have existed on the products that are the subject 
of today's proposed rule were preempted by the Federal standards 
established in NAECA. States can petition DOE for exemption from such 
preemption to the extent, and based on criteria, set forth in EPCA.

H. Review Under the Unfunded Mandates Reform Act of 1995

    With respect to a proposed regulatory action that may result in the 
expenditure by State, local and tribal governments, in the aggregate, 
or by the private sector of $100 million or more, section 202 of the 
Unfunded Mandates Reform Act of 1995 (UMRA) requires a Federal agency 
to publish estimates of the resulting costs, benefits and other effects 
on the national economy. 2 U.S.C. 1532(a), (b). UMRA also requires each 
Federal agency to develop an effective process to permit timely input 
by state, local, and tribal governments on a proposed significant 
intergovernmental mandate. DOE's consultation process is described in a 
notice published in the Federal Register on March 18, 1997. 62 FR 
12820. Today's proposed rule may impose expenditures of $100 million or 
more on the private sector. It does not contain a Federal 
intergovernmental mandate.
    Section 202 of UMRA authorizes an agency to respond to the content 
requirements of UMRA in any other statement or analysis that 
accompanies the proposed rule. 2 U.S.C. 1532(c). The content 
requirements of section 202(b) of UMRA relevant to a private sector 
mandate substantially overlap the economic analysis requirements that 
apply under section 325(o) of EPCA and Executive Order 12866. The 
SUPPLEMENTARY INFORMATION section of the January 22, 2001, notice of 
final rulemaking and ``Regulatory Impact Analysis'' section of the TSD 
for this proposed rule responds to those requirements.
    Under section 205 of UMRA, DOE is obligated to identify and 
consider a reasonable number of regulatory alternatives before 
promulgating a rule for which a written statement under section 202 is 
required. DOE is required to select from those alternatives the most 
cost-effective and least burdensome alternative that achieves the 
objectives of the rule unless DOE publishes an explanation for doing 
otherwise or the selection of such an alternative is inconsistent with 
law. As required by section 325(o) of the Energy Policy and 
Conservation Act (42 U.S.C. 6295(o)), today's proposed rule would 
establish energy conservation standards for central air conditioners 
and heat pumps that are designed to achieve the maximum improvement in 
energy efficiency that DOE has determined to be both technologically 
feasible and economically justified. A full discussion of the 
alternatives considered by DOE is presented in the ``Regulatory Impact 
Analysis'' section of the TSD for today's proposed rule.

I. Review Under the Treasury and General Government Appropriations Act, 
1999

    Section 654 of the Treasury and General Government Appropriations 
Act, 1999 (Pub. L. 105-277) requires Federal agencies to issue a Family 
Policymaking Assessment for any proposed rule or policy that may affect 
family well-being. Today's proposed rule would not have any impact on 
the autonomy or integrity of the family as an institution. Accordingly, 
DOE has concluded that it is not necessary to

[[Page 38841]]

prepare a Family Policymaking Assessment.

J. Review Under Executive Order 13211

    Executive Order 13211, ``Actions Concerning Regulations That 
Significantly Affect Energy Supply, Distribution, or Use,'' (66 FR 
28355, May 22, 2001) requires Federal agencies to prepare and submit to 
the Office of Information and Regulatory Affairs (OIRA), Office of 
Management and Budget, a Statement of Energy Effects for any proposed 
significant energy action. A ``significant energy action'' is defined 
as any action by an agency that promulgates or is expected to lead to 
the promulgation of a final rule, and that: (1) Is a significant 
regulatory action under Executive Order 12866, or any successor order; 
and (2) is likely to have a significant adverse effect on the supply, 
distribution, or use of energy; or (3) is designated by the 
Administrator of OIRA as a significant energy action. For any proposed 
significant energy action, the agency must give a detailed statement of 
any adverse effects on energy supply, distribution, or use should the 
proposed action be implemented, and of reasonable alternatives to the 
action and their expected benefits on energy supply, distribution, and 
use.
    Today's proposal would not have any adverse effects on the supply, 
distribution, or use of energy in the near term because neither the 
January 22, 2001 final rule nor any final rule resulting from this 
action would have any effect on the manufacture of central air 
conditioners and heat pumps until 2006. In the longer term, beginning 
in 2006, the proposed rule, if implemented, would have a positive 
impact on the reliability of electricity supply in the United States. 
The standards that DOE is proposing would represent a 20 percent 
improvement in the energy efficiency of split-system central air 
conditioners, and a 9 percent improvement in heating efficiency for 
heat pumps. The proposed standards would improve the cooling efficiency 
of single-package heat pumps by 24 percent and the heating efficiency 
of single-package heat pumps by 12 percent. As explained in Section 
IV.B.3. of this SUPPLEMENTARY INFORMATION, DOE estimates the standards 
would save approximately 3 quads of energy over 25 years (2006 through 
2030). Also, in determining whether the proposed standards are 
economically justified, DOE considered as a benefit the potential of 
the proposed standards to improve the reliability of the electric 
generation and distribution system. See Section IV.D.7 (``Other 
Factors'') and the preamble to the January 22 final rule. 66 FR 7181-
82, 7194. DOE's analysis shows the proposed standards would result in 
an estimated reduction in installed generation capacity in the year 
2020 of approximately 11 gigawatts. This would be the equivalent of 
three 400 megawatt coal-fired plants and twenty-three 400 megawatt gas-
fired plants.
    DOE acknowledges that projections indicate that the standard levels 
set out in the January 22, 2001 rulemaking would avoid electricity 
consumption to an even greater extent than under the standard level 
proposed in today's supplemental notice of proposed rulemaking. 
However, section 325 of EPCA requires DOE to weigh all of the 
significant costs and benefits associated with standard levels that are 
being considered and not just avoided electricity costs. DOE has set 
forth its evaluation of costs and benefits elsewhere in this notice 
(see Section V.C.). DOE has also considered various regulatory and non-
regulatory alternatives to today's proposed standard (see Section 
VI.B., ``Review Under Executive Order 12866,'' and the Regulatory 
Impact Analysis portion of the TSD). DOE has concluded that the costs 
associated with elevating the current standard to the standard level 
set forth in the January 22, 2001, final rule exceed the associated 
benefits, including the benefit of avoided electricity consumption.

VII. Public Comment

A. Written Comment Procedures

    DOE invites interested persons to participate in the proposed 
rulemaking by submitting data, comments, or information with respect to 
the proposed issues set forth in today's proposed rule to Ms. Brenda 
Edwards-Jones, at the address indicated at the beginning of this 
notice. We will consider all submittals received by the date specified 
at the beginning of this notice in developing the final rule.
    According to 10 CFR 1004.11, any person submitting information that 
he or she believes to be confidential and exempt by law from public 
disclosure should submit one complete copy of the document and ten (10) 
copies, if possible, from which the information believed to be 
confidential has been deleted. DOE will make its own determination with 
regard to the confidential status of the information and treat it 
according to its determination.
    Factors of interest to DOE when evaluating requests to treat as 
confidential information that has been submitted include: (1) A 
description of the items; (2) an indication as to whether and why such 
items are customarily treated as confidential within the industry; (3) 
whether the information is generally known by or available from other 
sources; (4) whether the information has previously been made available 
to others without obligation concerning its confidentiality; (5) an 
explanation of the competitive injury to the submitting person which 
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 contrary 
to the public interest.

B. Public Workshop/Hearing

1. Procedure for Submitting Requests To Speak
    You will find the time and place of the public hearing listed at 
the beginning of this notice. We invite any person who has an interest 
in today's notice, or who is a representative of a group or class of 
persons that has an interest in these issues, to request an opportunity 
to make an oral presentation. If you would like to attend the public 
hearing, please notify Ms. Brenda Edwards-Jones at (202) 586-2945. You 
may hand deliver requests to speak to the address indicated at the 
beginning of this notice between the hours of 8 a.m. and 4 p.m., Monday 
through Friday, except Federal holidays. You may also send them by mail 
or E-mail to [email protected].
    The person making the request should state why he or she, either 
individually or as a representative of a group or class of persons, is 
an appropriate spokesperson, briefly describe the nature of the 
interest in the rulemaking, and provide a telephone number for contact. 
We request each person selected to be heard to submit an advance copy 
of his or her statement at least two weeks prior to the date of this 
hearing as indicated at the beginning of this notice. At our 
discretion, we may permit any person who cannot do this to participate 
if that person has made alternative arrangements with the Office of 
Building Research and Standards in advance. The request to give an oral 
presentation should ask for such alternative arrangements.
2. Conduct of Hearing
    DOE will designate a DOE official to preside at the workshop and we 
may also use a professional facilitator to facilitate discussion. The 
workshop will

[[Page 38842]]

not be a judicial or evidentiary-type hearing, but DOE will conduct it 
in accordance with 5 U.S.C. 553 and Section 336 of the Act and a court 
reporter will be present to record the transcript of the workshop. We 
reserve the right to schedule the presentations by workshop 
participants, and to establish the procedures governing the conduct of 
the workshop.
    DOE will permit each participant to make a prepared general 
statement, limited to five (5) minutes, prior to the discussion of 
specific topics. DOE will permit other participants to briefly comment 
on any general statements.
    DOE will introduce each topic with a brief summary of the relevant 
parts of our analysis and of the proposed rule, and the significant 
issues involved. We will then permit participants in the hearing to 
make a prepared statement limited to five (5) minutes on that topic. At 
the end of all prepared statements on a topic, DOE will permit each 
participant to briefly clarify his or her statement and comment on 
statements made by others. Participants should be prepared to answer 
questions by us and by other participants concerning these issues. Our 
representatives may also ask questions of participants concerning other 
matters relevant to the hearing. The total cumulative amount of time 
allowed for each participant to make prepared statements will be 20 
minutes.
    The official conducting the hearing will accept additional comments 
or questions from those attending, as time permits. The presiding 
official will announce any further procedural rules, or modification of 
the above procedures, needed for the proper conduct of the hearing.
    We will make the entire record of this rulemaking, including the 
transcript, available for inspection in DOE's Freedom of Information 
Reading Room. Any person may purchase a copy of the transcript from the 
transcribing reporter.

List of Subjects in 10 CFR Part 430

    Administrative practice and procedure, Energy conservation, 
Household appliances.

    Issued in Washington, D.C., on July 18, 2001.
David K. Garman,
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; 28 U.S.C. 2461 note.

    2. Section 430.2 is amended by adding definitions for ``effective 
date,'' ``maximum allowable energy use,'' ``minimum required energy 
efficiency,'' and ``through-the-wall air conditioner and heat pump'' in 
alphabetical order to read as follows:


Sec. 430.2  Definitions.

* * * * *
    Effective date for purpose of the part, means the date on and after 
which a manufacturer must comply with an energy conservation standard 
in the manufacture of a covered product.
* * * * *
    Maximum allowable energy use means an energy conservation standard 
for a covered product, expressed in terms of a maximum amount of energy 
that may be consumed, which is established by statute or by a final 
rule that has modified this part pursuant to a date DOE has selected 
consistent with the Congressional Review Act (5 U.S.C. 801-804) and any 
other applicable law.
* * * * *
    Minimum required energy efficiency means an energy conservation 
standard for a covered product, expressed in terms of a minimum 
efficiency quotient, which is established by statute or by a final rule 
that has modified this part pursuant to a date DOE has selected 
consistent with the Congressional Review Act (5 U.S.C. 801-804) and any 
other applicable law.
* * * * *
    Through-the-wall air conditioner and heat pump means a central air 
conditioner or heat pump that is designed to be installed totally or 
partially within a fixed-size opening in an exterior wall, and:
    (1) Is manufactured prior to July 26, 2010;
    (2) Is not weatherized;
    (3) Is clearly and permanently marked for installation only through 
an exterior wall;
    (4) Has a rated cooling capacity no greater than 30,000 Btu/hr;
    (5) Exchanges all of its outdoor air across a single surface of the 
equipment cabinet; and
    (6) Has a combined outdoor air exchange area of less than 800 
square inches (split systems) or less than 1,210 square inches (single 
packaged systems) as measured on the surface described in (5).
* * * * *
    3. Section 430.32 of Subpart C is amended by revising paragraph (c) 
to read as follows:


Sec. 430.32  Energy and water conservation standards and effective 
dates.

    (c) Central air conditioners and central air conditioning heat 
pumps. (1) Split system central air conditioners and central air 
conditioning heat pumps manufactured after January 1, 1992, and before 
July 25, 2006, and single package central air conditioners and central 
air conditioning heat pumps manufactured after January 1, 1993, and 
before July 25, 2006, shall have Seasonal Energy Efficiency Ratio and 
Heating Seasonal Performance Factor no less than:

------------------------------------------------------------------------
                                    Seasonal energy    Heating seasonal
          Product class            efficiency ratio   performance factor
------------------------------------------------------------------------
1. Split systems................                10.0                 6.8
2. Single package systems.......                 9.7                 6.6
------------------------------------------------------------------------

    (2) Central air conditioners and central air conditioning heat 
pumps manufactured on or after July 25, 2006, shall have Seasonal 
Energy Efficiency Ratio and Heating Seasonal Performance Factor no less 
than:

------------------------------------------------------------------------
                                    Seasonal energy    Heating seasonal
          Product class            efficiency ratio   performance factor
                                        (SEER)              (HSPF)
------------------------------------------------------------------------
1. Split system air conditioners                  12  ..................
2. Split system heat pumps......                  12                 7.4
3. Single package air                             12  ..................
 conditioners...................
4. Single package heat pumps....                  12                 7.4

[[Page 38843]]

 
5.A. Through-the-wall air                       10.9                 7.1
 conditioners and heat pumps--
 split system...................
5.B. Through-the-wall air                       10.6                 7.0
 conditioners and heat pumps--
 single package.................
------------------------------------------------------------------------

* * * * *
    4. Section 430.34 is added to Subpart C to read as follows:


Sec. 430.34  Energy and water conservation standards amendments

    The Department of Energy may not prescribe any amended standard 
which increases the maximum allowable energy use or, in the case of 
showerheads, faucets, water closets or urinals, water use, or which 
decreases the minimum required energy efficiency of a covered product.

Appendix

(The following letters from Department of Justice will not appear in 
the Code of Federal Regulations.)

DEPARTMENT OF JUSTICE--Antitrust Division

A. DOUGLAS MELAMED--Acting Assistant Attorney Genera1

Main Justice Building, 950 Pennsylvania Avenue. NW., Washington, DC 
20530-0001, (202) 514-2401/ (202) 616-2645 (f), 
[email protected] (internet), http://www.usdoj.gov (World 
Wide Web)
December 4, 2000

Mary Anne Sullivan, General Counsel, Department of Energy, 
Washington, D.C. 20585

    Dear General Counsel Sullivan: I am responding to your October 
16, 2000 letter seeking the views of the Attorney General about the 
potential impact on competition of two proposed energy efficiency 
standards: one for clothes washers and the other for residential 
central air conditioners and heat pumps. Your request was submitted 
pursuant to Section 325(o)(2)(B)(i) of the Energy Policy and 
Conservation Act, 42 U.S.C. Sec. 6291, 6295 (``EPCA''), which 
requires the Attorney General to make a determination of the impact 
of any lessening of competition that is likely to result from the 
imposition of proposed energy efficiency standards. The Attorney 
General's responsibility for responding to requests from other 
departments about the effect of a program on competition has been 
delegated to the Assistant Attorney General for the Antitrust 
Division in 28 CFR Sec. 0.40(g).
    We have reviewed the proposed standards and the supplementary 
information published in the Federal Register notices and submitted 
to the Attorney General, which include information provided to DOE 
of Energy by manufacturers. We have additionally conducted 
interviews with members of the industries.
    We have concluded that the proposed clothes washer standard 
would not adversely affect competition. In reaching this conclusion, 
we note that the proposed standard is based on a joint 
recommendation submitted to DOE of Energy by manufacturers and 
energy conservation advocates. That recommendation states that 
virtually all manufacturers of clothes washers who sell in the 
United States participated in arriving at the recommendation through 
their trade association, that the recommendation was developed in 
consultation with small manufacturers, and that the manufacturers 
believe the new standard would not likely reduce competition. We 
note further that, as the industry recommended, the proposed 
standard will be phased in over six years, which will allow 
companies that do not already have products that meet the proposed 
standard sufficient time to redesign their product lines.
    With respect to the proposed residential central air conditioner 
and heat pump standard, we have concluded that there could be an 
adverse impact on competition. The proposed standard, Trial Standard 
Level 3, is expressed in terms of two industry measurements: SEER 
(Seasonal Energy Efficiency Ratio) and HSPF (Heating Seasonal 
Performance Factor).\1\ These standards would change from the 
current central air conditioner and heat pump efficiency standards 
of 10 SEER/6.8 HSPF for split system air conditioners and heat pumps 
and 9.7 SEER/6.6 HPSF for single package air conditioners and heat 
pumps to 12 SEER for air conditioners and 13 SEER/7.7 HPSF for heat 
pumps.
---------------------------------------------------------------------------

    \1\ The Federal Register notice also requested comments on a 
proposal to adopt a standard for steady-state cooling efficiency 
(EER) and discussed several options DOE of Energy is considering. 
The proposed rule set forth in the notice does not, however, include 
a provision regarding an EER standard, and the views of Department 
of Justice expressed in this letter are limited to the impact of any 
lessening of competition * * * that is likely to result from the 
imposition of the [proposed] standard,'' as required by EPCA. If DOE 
of Energy proposes a rule in the future incorporating an EER 
standard, DOE will then evaluate that proposed rule and express its 
views about the competitive impact of that standard.
---------------------------------------------------------------------------

    We have identified three possible competitive problems presented 
by the proposed standards. First, the proposed 13 SEER heat pump 
standard would have a disproportionate impact on smaller 
manufacturers. Currently less than 20% of the total current product 
lines meet the proposed standards, but for some small manufacturers, 
100% of their product lines fail to satisfy the proposed standard.
    Second, the proposed standard for heat pumps, and in some 
instances for air conditioners, would have an adverse impact on some 
manufacturers of these products (including those products referred 
to in the Federal Register notice as ``niche products'') used to 
retrofit existing housing and used in manufactured housing. These 
manufacturers could not make units that comply with the rule and fit 
into the available space.
    Third, the proposed heat pump standard of 13 SEER could make 
heat pumps less competitive with alternative heating and cooling 
systems. Because the standard will result in increases in the size 
and cost of heat pumps, it is possible that purchasers will shift 
away from heat pumps to other systems that inc1ude electric 
resistance heat, reducing the competition that presently exists 
between heat pumps and those other systems.
    Department of Justice urges DOE of Energy to take into account 
these possible impacts on competition in determining its final 
energy efficiency standard for air conditioners and heat pumps. DOE 
of Energy should consider setting a lower SEER standard for heat 
pumps, such as the standard included in Trial Standard Level 2, and 
a lower SEER standard for air conditioners for retrofit markets 
where there are space constraints (such as markets served by niche 
products) and for manufactured housing.

    Sincerely,

A. Douglas Melamed.

DEPARTMENT OF JUSTICE--Antitrust Division-Antitrust Division

JOHN M. NANNES-Acting Assistant Attorney General

Main Justice Building, 950 Pennsylvania Avenue NW., Washington, DC 
20530-0001, (202) 514-2401/ (202) 616-2645 (f), 
[email protected] (internet) 
http://www.usdoj.gov (World Wide Web)
April 5, 2001
Eric J. Fygi, Acting General Counsel, Department of Energy, 
Washington, DC 20585

    Dear Acting General Counsel Fygi: I am responding to your letter 
dated March 20, 2001, seeking the views of the Attorney General 
about the potential effect on competition of the final rule 
published on January 22, 2001, setting forth new energy efficiency 
standards for central air conditioners and heat pumps. You 
specifically asked for our views about the impact on competition of 
the rule's prescription of a 13 SEER (Seasonal Energy Efficiency 
Rating) standard for all product classes, except for niche products, 
and the desirability of reducing the standard to a 12 SEER level for 
all subcategories. Your letter requested our views by March 30, but 
your staff agreed to extend the response date to Apri1 6.
    As you noted in your letter to the Attorney General, the 
Antitrust Division had earlier expressed its views on the proposed 
rule, which provided for a 12 SEER standard for air conditioners and 
a 13 SEER standard for heat pumps. The Division had concluded that 
the 13 SEER standard for heat pumps

[[Page 38844]]

could have an adverse effect on competition and urged the Department 
of Energy to adopt a 12 SEER standard for heat pumps. We noted only 
minor concerns about the proposed 12 SEER standard for air 
conditioners.
    We have reviewed the final rule and determined that the 13 SEER 
heat pump standard still raises competitive problems. We have 
further determined that the 13 SEER standard for air conditioners 
also raises competitive concerns.
    In our earlier letter, we identified and described three 
competitive problems resulting from the proposed 13 SEER standard 
for heat pumps, including a disproportionate impact on smaller 
manufacturers \2\ and an adverse effect on manufacturers of 
specialized equipment (the niche product manufacturers) and 
manufacturers of equipment for space-constrained installation sites 
(such as manufactured housing, which accounts for a significant 
percentage of the country's housing starts). The exception made in 
the final rule for niche product manufacturers may alleviate 
competitive problems for their products, but the exception does not 
eliminate the difficulties for manufacturers of standard equipment 
who could not make equipment that complied with the 13 SEER standard 
and still fit into space-constrained sites. The final rule also 
continues to have a disproportionate impact on smaller manufacturers 
of heat pumps. The 13 SEER standard for air conditioners raises the 
same kinds of competitive problems as the 13 SEER standard does for 
heat pumps.
---------------------------------------------------------------------------

    \2\ We noted in our previous letter that less than 20% of the 
total current heat pump product lines meet the new standard, but for 
some small manufacturers, 100% of their product lines failed to 
satisfy the standard. The same is true for air conditioner 
manufacturers when the standard is 13 SEER.
---------------------------------------------------------------------------

    We urge the Department of Energy to consider the impact on 
competition and to adopt a 12 SEER standard for all products covered 
by the rule.

    Sincerely,

John M. Nannes.
[FR Doc. 01-18429 Filed 7-24-01; 8:45 am]
BILLING CODE 6450-01-P