[Federal Register: December 28, 2006 (Volume 71, Number 249)]
[Notices]
[Page 78157-78168]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr28de06-36]
[[Page 78157]]
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DEPARTMENT OF ENERGY
Office of Energy Efficiency and Renewable Energy
[Docket No. EE-RM-PET-100]
Energy Efficiency Program for Consumer Products: California
Energy Commission Petition for Exemption From Federal Preemption of
California's Water Conservation Standards for Residential Clothes
Washers
AGENCY: Office of Energy Efficiency and Renewable Energy, Department of
Energy.
ACTION: Notice of Denial of a Petition for Waiver from Federal
Preemption.
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SUMMARY: The Department of Energy (hereafter ``DOE'') announces its
denial, and the reasons therefore, of the California Energy
Commission's Petition for Exemption from Federal Preemption of
California's Water Conservation Standards for Residential Clothes
Washers (hereafter ``California Petition'').
DATES: A request for reconsideration of the denial must be received by
DOE not later than January 29, 2007.
ADDRESSES: A request for reconsideration must submitted, identified by
docket number EE-RM-PET-100, by one the following methods:
Mail: Ms. Brenda Edwards-Jones, U.S. Department of Energy,
Building Technologies Program, Mailstop EE-2J, Room 1J-018, 1000
Independence Avenue, SW., Washington, DC 20585-0121. Please submit one
signed original paper copy.
Hand Delivery/Courier: Ms. Brenda Edwards-Jones, U.S.
Department of Energy, Building Technologies Program, Room 1J-018, 1000
Independence Avenue, SW., Washington, DC 20585-0121.
Instructions: All submissions received must include the agency name
and docket number for this proceeding.
FOR FURTHER INFORMATION CONTACT: Bryan Berringer, U.S. Department of
Energy, Office of Energy Efficiency and Renewable Energy, Building
Technologies Program, EE-2J, 1000 Independence Avenue, SW., Washington,
DC 20585-0121, (202) 586-0371, or e-mail: Bryan.Berringer@ee.doe.gov;
or Francine Pinto, Esq., or Chris Calamita, Esq., U.S. Department of
Energy, Office of the General Counsel, GC-72, 1000 Independence Avenue,
SW., Washington, DC 20585, (202) 586-7432 or (202) 586-1777, e-mail:
Francine.Pinto@hq.doe.gov or Christopher.Calamita@hq.doe.gov.
SUPPLEMENTARY INFORMATION:
I. Summary of Today's Action
II. Background
A. Energy Conservation Standards under EPCA
B. Preemption of State Standards
1. DOE Energy Conservation Standards for Residential Clothes
Washers
2. Waiver of Preemption
3. Legislative History
C. California Petition
III. Effective Date Requirements of EPCA
IV. Analysis of the California Petition
A. Necessity of State Regulation to Address Unusual and
Compelling State Water Interests
1. Interests Substantially Different in Nature and Magnitude
from those Prevailing in the United States Generally
a. Consideration of ``U.S. generally''
b. Substantially different in nature or magnitude--analysis of
California's water interests
2. Costs, Benefits, and Burdens of the State Regulation as
Compared to Alternative Measures
a. Cost benefit analysis
b. Analysis of alternatives
3. Unusual and Compelling State Water Interests
B. Impacts of California's Standards on Manufacturing,
Marketing, Distribution, Sale or Servicing
1. Manufacturing and Distribution Costs
2. Effect on Competition and Smaller Entities
3. Redesign and Production
4. Proliferation of State Standards
5. Significant Impact on Manufacturing, Marketing, Distribution,
Sale, or Servicing
C. Availability of Product Performance Characteristics and
Features
1. Top-Loading Residential Clothes Washers
2. Other Product Classes
V. Denial
VI. Approval of the Office of the Secretary
I. Summary of Today's Action
DOE is denying a petition submitted by the California Energy
Commission (CEC) for a waiver from Federal preemption of its
residential clothes washer regulation contained in section 1605.2(p)(1)
of the California Code of Regulations.\1\ DOE is denying the petition
for three separate and independent reasons. First, DOE is denying the
petition because DOE does not have the statutory authority to prescribe
a rule for California that would become effective by January 1, 2007,
the first of two compliance dates contained in Title 20, section
1605.2(p)(1) of the California Code of Regulations. Section
327(d)(5)(A) of the Energy Policy and Conservation Act (Pub. L. 94-163,
as amended) (EPCA) requires that a final rule prescribed by DOE to
grant a petition such as the California Petition must have an effective
date at least three years following publication of the final rule. (42
U.S.C. 6297(d)(5)(A)) The California Petition does not comply with the
effective date criteria in EPCA, and CEC has not petitioned for an
effective date other than that provided in the California regulation.
CEC has provided information only in the context of the compliance
dates of the California regulation, and has not provided the
information necessary for DOE to promulgate a rule with an effective
that would be compliant under EPCA, i.e., a rule with an effective date
three years following the date of issuance. Therefore, DOE denies the
California Petition's waiver request.
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\1\ The Appliance Efficiency Regulations, (California Code of
Regulations, Title 20, sections 1601 through 1608) dated January
2006, were adopted by the California Energy Commission on October
19, 2005, and approved by the California Office of Administrative
Law on December 30, 2005. The Appliance Efficiency Regulations
include standards for both federally-regulated appliances and non-
federally-regulated appliances.
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Second, CEC has not established by a preponderance of the evidence
that the State of California has unusual and compelling water
interests, a condition required by EPCA for DOE to grant California a
waiver from Federal preemption. (42 U.S.C. 6297(d)(1)(B)) CEC did not
provide sufficient support for what CEC alleges to be the costs and
benefits of the California regulation presented in the petition.
Further, CEC did not provide an appropriate analysis of non-regulatory
alternatives for comparison to the California regulation. Without
support for the likely costs and benefits associated with the
California regulation and an appropriate alternatives analysis, DOE was
unable to evaluate if the California regulation is ``preferable or
necessary'' as compared to non-regulatory alternatives, which is a
required showing in order for DOE to determine that an unusual and
compelling water interest exists. (42 U.S.C. 6297(d)(1)(C)(ii))
Therefore, DOE cannot find that the California regulation is preferable
or necessary as compared to non-regulatory alternatives, and denies the
California Petition's waiver request.
Third and finally, interested parties demonstrated by a
preponderance of evidence that the State of California regulation would
likely result in the unavailability of a class of residential clothes
washers in California. Commenters submitted to DOE information
demonstrating that the 2010 water factor (WF) standard would likely
result in the unavailability of top-loader residential clothes washers
in California. Thus, even if DOE had the authority to ignore or
override the first effective date of the California
[[Page 78158]]
regulation (i.e., 2007) and promulgate a rule that complied with the
EPCA requirement that the rule not take effect for another three years,
the rule would violate EPCA in another way, i.e., it would mandate the
6.0 WF standard in 2010, which would likely result in the
unavailability of top-loader residential clothes washers. Therefore,
under section 327(d)(4) of EPCA, DOE denies the California Petition's
waiver request. (42 U.S.C. 6297(d)(4))
II. Background
A. Energy Conservation Standards Under EPCA
Part B of Title III of EPCA established the Energy Conservation
Program for Consumer Products Other Than Automobiles. (42 U.S.C. 6291-
6309) Products covered under the program, including residential clothes
washers, are listed in section 322(a) of EPCA. (42 U.S.C. 6292(a))
Section 325(g) of EPCA establishes energy conservation standards for
residential clothes washers and authorizes DOE to amend these
standards. (42 U.S.C. 6295(g))
B. Preemption of State Standards
Generally under the provisions of EPCA, where an energy efficiency
standard is effective for a ``covered product'' under EPCA, including a
standard for residential clothes washers, a State regulation concerning
the energy efficiency, energy use, or water use of that product is
preempted and is not effective. (42 U.S.C. 6297(c)) Section 322(a)(7)
lists residential clothes washers as a product covered under Part B of
Title III of EPCA. (42 U.S.C. 6292(a)(7)) DOE has established energy
efficiency standards for residential clothes washers as a covered
product under section 325(g)(4)(A), and those standards are currently
in effect (10 CFR 430.32(g)). (42 U.S.C. 6295(g)(4)(A)) Therefore,
State regulations concerning the water use of residential clothes
washers are preempted by the Federal standards. EPCA provides several
provisions in which the Federal standards do not preempt State
regulation, but for residential clothes washers the only applicable
exception from the preemption provision is if a waiver is granted under
section 327(d). (42 U.S.C. 6297(c)(2))
1. DOE Energy Conservation Standards for Residential Clothes Washers
The initial Federal efficiency standards prescribed in EPCA, as
amended by the National Appliance Energy Conservation Act of 1987 (Pub.
L. No. 100-12) (NAECA), required an unheated rinse water option for
residential clothes washers manufactured on or after January 1, 1988.
(42 U.S.C. 6295(g)) On January 12, 2001, DOE issued a final rule
establishing energy efficiency standards for five product classes of
residential clothes washers (hereafter referred to as ``the January
2001 final rule''): top-loading compact; top-loading, standard; front-
loading; top-loading, semi-automatic; and top-loading, suds-saving. 66
FR 3314.
The January 2001 final rule established minimum energy efficiency
standards, set forth in Table II.1, below, to become effective on
January 1, 2004, and January 1, 2007. The January 2001 final rule
constituted the second residential clothes washer rulemaking required
by EPCA. DOE's standards for residential clothes washers are energy
efficiency standards only; DOE has not set a water use requirement for
residential clothes washers.\2\ (10 CFR 430.32(g))
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\2\ The Energy Policy Act of 2005 (Pub. L. 109-58) amended EPCA
with new energy efficiency and water conservation standards for
commercial clothes washers. These new standards require products
manufactured on or after January 1, 2007, to have a modified energy
factor of at least 1.26 and a water consumption factor2 of not more
than 9.5. (42 U.S.C. 6313(e))
Table II.1.--Federal Residential Clothes Washer Standard Levels
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Modified energy factor (ft.\3\/ kWh / cycle)
Product class Capacity ---------------------------------------------------------
(ft.\3\) Effective date 1/1/2004 Effective date 1/1/2007
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Top-Loading, compact..................... < 1.6 0.65....................... 0.65
Top-Loading, standard.................... >= 1.6 1.04....................... 1.26
Front-Loading............................ -- 1.04....................... 1.26
Top-Loading, Semi-automatic.............. -- Unheated rinse water option Unheated rinse water option
Suds-saving.............................. -- Unheated rinse water option Unheated rinse water option
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2. Waiver of Preemption
As stated above, Federal energy efficiency standards for
residential products generally preempt State laws, regulations and
other requirements concerning energy conservation testing, labeling,
and efficiency standards. (42 U.S.C. 6297(a)-(c)) Section 327(d) of
EPCA sets forth the procedures and provisions for granting waivers from
Federal preemption (hereafter ``waiver'') for particular State laws or
regulations. (42 U.S.C. 6297(d)) Section 327(d)(1)(A) of EPCA provides
that any State or river basin commission with a State regulation
regarding energy use, energy efficiency, or water use requirements for
products regulated by DOE may petition for a waiver of Federal
preemption and seek to apply its own State regulation. (42 U.S.C.
6297(d)(1)(A)) Regulations implementing the statutory provisions
regarding petitions for waiver from Federal preemption are codified at
10 CFR part 430 subpart D.
Section 327(d)(1)(B) of EPCA requires a petitioner to establish
``by a preponderance of the evidence'' that its proffered regulation
``is needed to meet unusual and compelling State or local energy or
water interests.'' (42 U.S.C. 6297(d)(1)(B)) ``[U]nusual and
compelling'' interests are defined as interests which:
(i) Are substantially different in nature or magnitude than
those prevailing in the United States generally; and
(ii) Are such that the costs, benefits, burdens, and reliability
of energy or water savings resulting from the State regulation make
such regulation preferable or necessary when measured against the
costs, benefits, burdens, and reliability of alternative approaches
to energy or water savings or production, including reliance on
reasonably predictable market-induced improvements in efficiency of
all products subject to the State regulation.''
(42 U.S.C. 6297(d)(1)(C)(i) and (ii))
The Secretary may not grant a waiver if he finds ``that interested
persons have established, by a preponderance of the evidence, that''
the State regulation would ``significantly burden manufacturing,
marketing, distribution, sale, or servicing of the covered product on a
national basis.'' (42 U.S.C.
[[Page 78159]]
6297(d)(3)) This is the case even if a State has sufficiently
demonstrated the existence of ``unusual and compelling interests.''
To evaluate whether the State regulation will create a significant
burden, the Secretary must consider ``all relevant factors,'' including
the following:
(A) The extent to which the State regulation will increase
manufacturing or distribution costs of manufacturers, distributors,
and others;
(B) The extent to which the State regulation will disadvantage
smaller manufacturers, distributors, or dealers or lessen
competition in the sale of the covered product in the State;
(C) The extent to which the State regulation would cause a
burden to manufacturers to redesign and produce the covered product
type (or class), taking into consideration the extent to which the
regulation would result in a reduction--
(i) In the current models, or in the projected availability of
models, that could be shipped on the effective date of the
regulation to the State and within the United States; or
(ii) In the current or projected sales volume of the covered
product type (or class) in the State and the United States; and
(D) The extent to which the State regulation is likely to
contribute significantly to a proliferation of State appliance
efficiency requirements and the cumulative impact such requirements
would have.
(42 U.S.C. 6297(d)(3)(A) through (D))
The Secretary also may not grant a waiver if interested persons
have established, by a preponderance of the evidence, that
[T]he State regulation is likely to result in the unavailability
in the State of any covered product type (or class) of performance
characteristics (including reliability), features, sizes,
capacities, and volumes that are substantially the same as those
generally available in the State at the time of the Secretary's
finding[.]''
(42 U.S.C. 6297(d)(4)) The failure of some classes (or types) to meet
these statutory criteria shall not affect the Secretary's determination
of whether to prescribe a rule for other classes (or types). (Id.)
The phrase ``any covered product type (or class) of performance
characteristics'' is not clear on its face. (42 U.S.C. 6297(o)(4))
Grammatically, the phrase ``of performance characteristics'' appears to
modify the term ``product type'' and the term ``class.'' While that
phrase fits with the term ``class,'' it is ambiguous at best when read
with the term ``product type.''
DOE interprets section 327(d)(4) consistent with a parallel
provision in section 325(o)(4) which reads,
[T]he standard is likely to result in the unavailability in the
United States in any covered product type (or class) of performance
characteristics (including reliability), features, sizes,
capacities, and volumes that are substantially the same as those
generally available in the United States at the time of the
Secretary's finding.
(42 U.S.C. 6295(o)(4)) The similarity of the language regarding
``covered product type (or class) of performance characteristics'' in
section 327(d)(4) and section 325(o)(4) indicates that this language
should be read consistently between the two sections. Further, the
similarity in function between these two sections supports a consistent
reading.
Section 325(o) establishes the criteria for prescribing new or
amended Federal standards. (42 U.S.C. 6295(o)) In past discussions of
section 325(o)(4), DOE has stated that it is prohibited from
establishing a standard that the Secretary finds will result in the
unavailability of any covered product type with performance
characteristics (including reliability), features, sizes, capacities,
and volumes that are substantially the same as products generally
available in the United States at the time of the Secretary's finding.
61 FR 36974, 36984 (July 15, 1996).
Section 327(d) establishes the criteria for prescribing a rule that
grants a waiver from preemption for a State regulation. Section
327(d)(4) prohibits DOE from prescribing such a rule if the rule would
impact the availability of covered products. Concern with the impact of
an efficiency standard on product availability is equally applicable
for a State standard for which a waiver from preemption is requested,
as it is with a Federal standard. Therefore, DOE sees no need or reason
to interpret the ``covered product type (or class) of performance
characteristics'' language differently in section 327(d)(4) than in
section 325(o)(4).
Furthermore, this interpretation of 327(d)(4) is consistent with
the balance Congress apparently meant to strike between more stringent
efficiency standards and consumer product choice. The Senate report
accompanying NAECA states that DOE shall not ``grant a waiver if
interested persons show that the State regulation is likely to result
in the unavailability in the State of a product type or of products of
a particular performance class, such as frost-free refrigerators.'' (S.
Rep. No. 100-6, 100th Cong., 1st Sess. (1987). at 2)
A final reason for choosing this interpretation of section
327(d)(4) is that in response to the notice of receipt of the
California Petition and request for comment (71 FR 6022; February 6,
2006) neither California nor any commenter in response to the
California petition has suggested that DOE has misconstrued section
327(d)(4).
If a petition for a waiver from Federal preemption is denied, the
petitioner may ``request reconsideration within 30 days of denial.'' 10
CFR 430.48. The request must contain a statement of facts and reasons
supporting reconsideration. DOE will only reconsider a denial of a
petition where it is alleged and demonstrated that the denial was based
on an error of law or fact and that evidence of the error is found in
the record of proceedings. 10 CFR 430.48(b).
3. Legislative History
The current waiver provisions are, in part, the result of
amendments to EPCA under NAECA. In 1987, Congress passed NAECA which
amended EPCA's provisions on petitions for waiver from Federal
preemption under section 327(d). Under the original provisions, DOE
could grant a petition only if it found that there was a ``significant
State or local interest to justify such State regulation'' and that
``such State regulation contains a more stringent energy efficiency
standard than such Federal standard.'' (S. Rep. No. 100-6, 100th Cong.,
1st Sess. (1987). at p. 40) Furthermore, DOE could not prescribe a rule
if DOE found that ``the State regulation would unduly burden interstate
commerce.'' (Id.)
Under the NAECA revisions, the preemption provisions allow States
to ``petition DOE to be waived from Federal preemption, but achieving
the waiver is difficult.'' (S. Rep. No. 100-6, 100th Cong., 1st Sess.
(1987) at p. 2.) In addition, according to the Senate Report, the
amended provision ``provides new and more stringent criteria that a
State must establish by a preponderance of the evidence in order to
receive an exemption.'' (S. Rep. No. 100-6, 100th Cong., 1st Sess.
(1987). at p. 9)
For all of the above-mentioned criteria that DOE must consider in
evaluating a petition, Congress placed the burden on the petitioner,
interested parties supporting the petition, and interested parties
opposing the petition, depending on the criteria, to establish facts
and to meet the statutory criteria ``by a preponderance of the
evidence.'' The California Petition is the first petition for a waiver
of Federal preemption submitted under section 327(d) since Congress
amended the preemption provisions in 1987.
[[Page 78160]]
C. California Petition
California Assembly Bill 1561, passed by the California legislature
and signed into law in 2002, required CEC to adopt water efficiency
standards for residential clothes washers by January 2004, and to file
a petition with DOE for a waiver by April 2004. The California
legislation also requires that residential clothes washers ``be at
least as water-efficient as commercial clothes washers.'' (California
Public Resources Code section 25402(e)) California currently requires
that commercial clothes washers meet a maximum water factor (WF) \3\ of
9.5 by January 1, 2007, the same standard as prescribed by Section 342
of EPCA. (20 C.C.R. 1605.3(p) and 42 U.S.C. 6313(e)) In 2004, CEC
adopted water efficiency standards for top- and front-loading
residential clothes washers, setting a two-tier standard of 8.5 WF
effective January 1, 2007, and 6.0 WF effective January 1, 2010. (20
C.C.R 1605.2(p)(1)) (CEC, No. 1 at p. 3)
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\3\ According to the California Code of Regulations (CCR);
``Water factor'' means the quotient of the total weighted per-cycle
water consumption divided by the capacity of the clothes washer,
determined using the applicable test method *** which is the same
test method as prescribed by DOE (i.e., 10 CFR Part, 430 Subpart B,
Appendix J1 for residential clothes washers). (20 C.C.R. 1602(p) and
1604(p))
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On September 16, 2005, DOE received from CEC a petition dated
September 13, 2005, for a waiver from Federal preemption pursuant to
the requirements of section 327(d) of EPCA (42 U.S.C. 6297(d)) and 10
CFR part 430, subpart D. However, by letter dated November 18, 2005,
DOE notified CEC that its petition had failed to comply with certain
requirements set out in 10 CFR 430.42(c).\4\ In particular, the
original petition had not included the statement required by 10 C.F.R.
430.42(c), on whether ``[to the best knowledge of the petitioner] the
same or related issue, act or transaction has been or presently is
being considered or investigated by any State agency, department, or
instrumentality.'' CEC responded on December 5, 2005, and provided the
required information, stating that it was aware of only its petition
and the California standard the CEC adopted in 2004. (CEC, No. 2 at p.
2) By letter dated December 23, 2005, DOE notified CEC that it had
accepted as complete the California Petition as supplemented.\5\
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\4\ Faulkner, D.L. Letter to Jonathan Blees. November 18, 2005.
\5\ Faulkner, D.L. Letter to Jonathan Blees. December 23, 2005.
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On February 6, 2006, DOE published a notice of receipt of the
California Petition in the Federal Register (hereafter referred to as
the ``February 2006 notice'') and requested comments on the California
Petition. (71 FR 6022) DOE received 78 comments on the California
Petition, including more than 50 from California utilities, agencies,
districts, water service districts, and cities.
III. Effective Date Requirements of EPCA
Section 327(d)(5)(A) of EPCA requires minimum lead times for any
rule prescribed by DOE under the waiver provisions. In general, EPCA
requires that,
[N]o final rule prescribed by the Secretary under [the waiver
provisions] may permit any State regulation to become effective with
respect to any covered product manufactured within three years after
such rule is published in the Federal Register or within five years
if the Secretary finds that such additional time is necessary due to
the substantial burdens of retooling, redesign, or distribution
needed to comply with the State regulation.
(42 U.S.C. 6297(d)(5)(A)) EPCA also establishes separate lead time
requirements if a State regulation were to become effective prior to
the earliest possible effective date for the initial amendment of the
energy conservation standard established by the statute. (42 U.S.C.
6297(d)(5)(B)) This separate provision is not applicable to the case at
hand, as the earliest possible effective date for the initially amended
standard for residential clothes washers was January 1, 1993. (42
U.S.C. 6295(g)(4)(A)) As noted above, the California Petition requests
a two-tier regulation with two effective dates: 8.5 WF effective
January 1, 2007, and 6.0 WF effective January 1, 2010. (20 C.C.R
1605.2(p)(1)) The requested effective date of 2007 would not allow for
the minimum three-year lead time required by EPCA. Further, it is not
clear what impact a revised effective date would have on the analyses
provided by CEC and interested parties. If the effective dates of the
two-tiered standard were each set three years beyond that of the
California regulation, or if the first tier were eliminated, the water
savings and costs could be different from that presented in the
California petition as well as in comments provided by interested
parties.
IV. Analysis of the California Petition
A. Necessity of State Regulation To Address Unusual and Compelling
State Water Interests
As indicated above, in order for DOE to grant CEC's petition for a
waiver from preemption, the State must establish by a preponderance of
the evidence that its regulation is needed to meet unusual and
compelling water interests. For such interests to exist, California's
water interests must, first, be substantially different in nature or
magnitude from those prevailing in the U.S. generally, and, second, be
such that the State regulation is necessary or preferable to
alternative approaches, evaluated in light of several specified
factors. (42 U.S.C. 6297(d)(1)(C))
1. Interests Substantially Different in Nature or Magnitude From Those
Prevailing in the United States Generally
a. Consideration of ``U.S. generally''.
In the February 2006 notice requesting comments on the California
Petition, DOE asked whether it should interpret the phrase ``in the
United States generally'' to include a comparison to both regional and
national averages. 71 FR 6025. DOE received several comments on this
issue, with differing opinions on whether simply a national comparison
or also regional and local comparisons were appropriate.
In its comments, the San Diego County Water Authority (SDCWA) and
CEC (in its rebuttal comment) asserted that DOE should not use regional
comparisons to assess whether California's water interests are
substantially different. The SDCWA commented that ``if Congress had
intended for regional comparisons to apply, it would have stated this
in [EPCA].'' (SDCWA, No. 29 at p. 3) CEC emphasized that section
327(d)(1)(C)(i) of EPCA refers to ``the United States generally.'' (42
U.S.C. 6297(d)(1)(C)(i)) CEC also challenged the relevancy of a
comparison to individual States or cities and asserted that examining
California's interests in the context of regions does not negate the
unique water and energy costs experienced by the State of California.
(CEC, No. 79 at pp. 3-4)
The National Electrical Manufacturers Association (NEMA) commented
that it believes DOE should consider water use issues faced by other
States on an individual basis or regions of the United States. Further,
NEMA asserted that a comparison to other States on an individual basis
and regions would help DOE to assess how unusual and compelling
California's water interests are and the potential for the
proliferation of State standards. (NEMA, No. 36, at p. 4)
The Gas Appliance Manufacturers Association (GAMA) and the
Association of Home Appliance Manufacturers (AHAM) commented that a
decision by DOE to grant the California standards could result in a
[[Page 78161]]
proliferation of State waiver requests, if other States have similar
situations to California's. In its comment, GAMA questioned whether
California's water concerns are so substantially different in nature or
magnitude from those of many other States. (GAMA, No. 38 at p. 2) In
addition, AHAM argued that California's situation is similar to that in
other regions, including other western States, and could thus result in
a proliferation of State standards. (AHAM, No. 52 at p. 50)
DOE interprets the term ``U.S. generally'' in section
327(d)(1)(C)(i) of EPCA as necessitating a comparison of a State's
interests to national averages. The Webster's II, New Riverside
University Dictionary (1994) defines ``generally'' as ``widely,''
``usually,'' and ``in disregard of particular instances, and details.''
The Random House College Dictionary (1980) defines ``generally'' as
``with respect to the larger part,'' ``usually, commonly,'' and
``without reference to or disregarding particular * * * situations * *
* which may be an exception.'' Based on the dictionary definition and
plain meaning of ``generally,'' an evaluation of whether a State's
interest is substantially different in nature or in magnitude calls for
a comparison of the State's interests to the U.S. as a whole, instead
of a comparison with discrete regions or specific States.
Further, comparison of a State's interests to national averages is
reasonable given the purpose of a waiver from preemption provisions in
EPCA. The waiver of Federal preemption provisions provide for the
establishment, in limited instances, of a State standard that is more
stringent than a Federal, i.e., national standard. Essentially, the
State must demonstrate that its energy or water interests are not
adequately addressed by the Federal standard.
Federal efficiency standards address, in part, the need for
national energy conservation. (42. U.S.C. 6295(o)(2)(B)(i)(VI))
Consideration of the need for national energy conservation requires DOE
to analyze the interests of the Nation as a whole. DOE believes that in
order for a State to demonstrate the State's need for a waiver, the
State must demonstrate that State or local energy or water interests
are substantially different in nature or magnitude than the national
energy or water interests considered by DOE in establishing the Federal
standard. Therefore, a State's interests must be compared to national
averages, as opposed to regional averages or averages specific to
sister States.
While under the terms of EPCA the potential proliferation of State
standards is an issue that DOE must consider, this issue is better
addressed when conducting the necessary analysis of costs and burdens,
not when considering the nature and magnitude of a State's water
interests. When analyzing the costs and burdens, DOE must consider:
The extent to which the State regulation is likely to contribute
significantly to a proliferation of State appliance efficiency
requirements and the cumulative impact such requirements would have.
(42 U.S.C. 6297(d)(3)(D)) Additionally, if DOE were to grant a request
for a waiver from Federal preemption, DOE believes that the potential
burden from multiple State standards could be addressed, in part,
through responses to individual waiver petitions.
b. Substantially different in nature or magnitude--analysis of
California's water interests.
In its petition and its rebuttal to comments, CEC stated that
California's water interests are substantially different in both nature
and magnitude from those prevailing in the United States generally.
(CEC, No. 1 at p. 5; CEC, No. 79 at p. 4) Several interested parties
provided statements in support of CEC on this point. (CUWCC, No. 61 at
p. 3; SDCWA, No. 29 at p. 4)
CEC asserted that California's water interests are substantially
different in nature than those prevailing in the U.S. generally. CEC
stated that its water supplies are limited, noting that existing
reservoirs are being drawn down in the face of drought, streams and
groundwater supplies face overdraft, and under the terms of the
Colorado River Agreement California will be able to draw less water
from the Colorado River. (CEC, No. 1 at p. 11) CEC also stated that
California has higher water rates than the U.S. in general, stating
that a thousand gallons of water saved in California is valued on
average at $3.15, compared to a national average of $2.88. (CEC, No. 1
at pp. 13)
CEC stated that California's water distribution has one of the
highest associated energy costs in the nation, and cited a report
stating that California's water systems are uniquely energy intensive
due to the pumping requirements for the major conveyance systems. (CEC,
No. 1 at p. 14) CEC stated that associated energy values (e.g., the
energy required to transport water) average 8.4 KWh per 1,000 gallons
in Southern California and can be as high as 11 kWh per 1,000 gallons
in California for marginal water supplies. CEC did not provide national
averages for the associated energy, generally. However, CEC stated that
the average rural household well in the U.S. requires 2.61 kWh per
1,000 gallons of delivered water, whereas California estimates range
from 4.1 kWh to 6 kWh per 1,000 gallons. (CEC, No. 1 at pp. 14-15)
Additionally, CEC asserted in its petition that the magnitude of
California's water use is substantially different than that prevailing
in the U.S. generally. CEC stated that California's total (fresh and
saline) withdrawals exceed that of all other States at 51 billion
gallons per year. CEC cited U.S. Geological Survey Circular 1268,
``Estimated Use of Water in the United States in 2000-Table 2,''
(revised February 2005), which estimates the average State withdrawal
at 8.1 billion gallons per year. (CEC, No. 1 at pp. 5-6) CEC also
stated that its projected population growth through 2025 is expected to
be above the national median. (CEC, No. 1, at p. 6) CEC stated that
U.S. Bureau of Census figures estimate the median growth rate for all
States to be 20 percent through 2025. (Id.) Relying again on U.S.
Bureau of Census figures, CEC stated that California's population is
expected to increase by approximately 36 percent through 2025; increase
from the current population of 36 million to 49 million in 2025. (Id.)
CEC indicated that in addition to the water demands generated by
its increasing population, the State's agricultural economy requires
more water than compared to the U.S. generally. CEC stated that
California has the highest amount of irrigated farm land of any State
in the country--8.7 million acres, and that California has the largest
proportion of irrigated farm land to total farm land (32 percent) in
the country. (CEC, No. 1 at p. 7)
While CEC presented information indicating that its water supplies
are becoming limited and that the State faces high energy costs
associated with water distribution, most of this information was not
placed in the context of supply and costs on a national level. It may
well be as CEC asserts that California is facing a drought and that
reservoirs are being overdrawn, and that under the Colorado River
Agreement California is required to decrease the amount of water it
draws from the river. However, CEC failed to provide DOE with a
comparison of California's supply problems to the Nation in general.
Without such information, DOE is unable to determine if the nature of
California's interests is different than the Nation in general. If the
Nation on average, or substantial
[[Page 78162]]
portions thereof, was facing a drought and water supplies were being
overdrawn, California's interests would not be substantially different
than the U.S. generally. Similarly, neither CEC nor comments supporting
its petition, provided information regarding energy costs associated
with water distribution on the national level. CEC did provide a
comparison of energy costs for water drawn from rural wells, but this
limited comparison was not sufficient to meet the ``preponderance of
evidence'' burden established by EPCA. The water interests CEC is
seeking to address through the proposed California regulation are much
broader than those related to water demand from rural wells; i.e., the
proposed California regulation would impact all consumers of
residential clothes washers, not just those that rely on rural wells.
With regard to the magnitude, DOE has determined that the
California Petition demonstrated by a preponderance of the evidence
that California's water interests are substantially different in
magnitude from those faced by the U.S. generally. In analyzing the
magnitude, as well as the nature, of a State's energy or water
interests, DOE does not rely on any single factor in making a
determination, but instead balances all of the relevant information
presented.
CEC presented evidence that the volumetric total demand for water
in California is substantially greater than that of other States in the
U.S. in general. As evidenced by data submitted by CEC, California's
water withdrawal is over six times that of the national per-State
average, 51 billions gallons per year as compared to 8.1 billion
gallons per year. (CEC, No. 1 at pp. 5-6) The California Petition also
indicated that water demand would likely increase as a result of
population growth which is above the national median. (CEC, No. 1 at p.
6)
Volumetric total demand in and of itself does not demonstrate a
substantial difference in magnitude for the purpose of EPCA, but the
total demand considered in conjunction with the likely increase in
demand that will accompany California's projected population growth and
the value of water saved demonstrates by a preponderance of the
evidence that California's water interests are substantially different
in magnitude than in the U.S. generally. If DOE were to consider only a
State's total water demand in determining whether a State's water
interests were substantially different in magnitude, more populous
States would likely be able to demonstrate that their interests are
substantially different in magnitude from the U.S. generally simply due
to the fact that the State's population is greater than the average
State population. This would be contrary to the general intent of the
waiver provision, which is that it establishes a high bar for granting
a waiver request. (See S. Rep. No. 100-6, 100th Cong., 1st Sess.
(1987). at p. 2)
CEC has demonstrated by a preponderance of the evidence that
California's water interests are substantially different in magnitude
from the U.S. generally by demonstrating that it has a volumetric total
demand far greater than the national average--by far the largest demand
in the Nation--and this demand is accompanied by a projected population
increase that is above the median growth rate for all States, and an
average value of water saved in California that is greater than the
national average value of water saved. As stated above, CEC reported
that California has higher water rates than the U.S. in general, an
average of $ 3.15 per thousand gallons of water saved in California
versus a national average of $2.88 per thousand gallons of water saved.
(CEC, No. 1 at pp. 13)
Conversely, the California Petition asserted that California's per
capita water use (for all uses) is relatively low (CEC, No. 1 at p. 5)
and according to the CUWCC, California consumers use less indoor water
per capita than many other States. (CUWCC, No. 61 at p. 3) The per
capita demand for water by the California residential sector would
indicate that California's demand is not substantially different in
magnitude from the U.S. in general, on a per capita basis.
While per capita demand may be low in comparison to the national
average, this fact alone is too narrow a basis to reject CEC's
assertion that California's water interest is greater in magnitude than
that of the U.S. generally. As stated above, DOE balances all of the
factors presented by the petitioner and comments provided by interested
parties in support of the petition. A per capita demand in California
that was substantially higher than the average per capita demand for
the U.S. generally would support a substantial difference in magnitude.
However, a per capita demand in California that is lower than the
national average per capita demand does not negate the fact that
California faces a higher than average total volumetric demand, a
projected population increase that is higher than generally projected
for all of the States, and higher than average water rates.
DOE based its determination on the full spectrum of information
provided by CEC and various interested parties. As stated above, on
balance with all of the water demand information provided, DOE has
determined that the California Petition has shown by a preponderance of
the evidence that the magnitude of California's water interest is
substantially different from the U.S. generally. The data regarding
California's greater than average volumetric total demand, the likely
increase in demand that will accompany a projected population growth
that is higher than the median for all States, and the greater than
average value of water saved (per thousand gallons of water)
demonstrate by a preponderance of the evidence that California's water
interests are substantially different in magnitude from the U.S.
generally.
The Air-Conditioning and Refrigeration Institute (ARI) asserted
that the Senate provided direction on the meaning of ``substantial'' in
the phrase ``substantially different in nature or magnitude than those
prevailing in the United States generally'' in the 1987 Senate Report
on NAECA. In particular, ARI cites the Senate's reference to a ``3 to
10 year 'lock-in' period for the Federal standards except if the State
can show that an 'energy emergency condition' exists within the
State[.]'' (S. Rep. No. 100-6, 100th Cong., 1st Sess. (1987) at p. 2)
(ARI, No. 35 at pp. 2-3)
DOE does not agree with the assertion that a State must demonstrate
that an emergency exists in order for DOE to find that a State's
interests are substantially different in nature or magnitude from the
U.S. generally. Section 327(d)(5)(B)(i) explicitly requires a showing
of an emergency condition if DOE were to prescribe by final rule that a
State regulation is to become effective prior to the earliest possible
effective date of a Federal standard. (42 U.S.C. 6297(d)(5)(B)(i)) The
statute establishes no such requirement for determining whether a
State's water interests are ``unusual and compelling.'' DOE declines to
read into section 327 an additional requirement, i.e., the existence of
an emergency as an element of the ``unusual and compelling''
provision--that does not appear in the text.
2. Costs, Benefits, and Burdens of the State Regulation as Compared to
Alternative Measures
In addition to demonstrating that the nature or magnitude of a
State's interests are different from those in the U.S. generally, CEC
must also demonstrate by a preponderance of the evidence that the
costs, benefits,
[[Page 78163]]
burdens, and reliability of the water savings resulting from its
regulation make such regulation preferable or necessary when measured
against alternative approaches. (42 U.S.C. 6297(d)(1)(C)(ii)) If the
petitioner fails to make such a showing, DOE cannot determine that
California's water interests are ``unusual and compelling.'' In the
present instance, CEC and commenters supporting the California Petition
failed to satisfy their burden of providing sufficient information to
allow DOE to make such a determination.
a. Cost benefit analysis.
CEC estimated the energy, water, and dollar savings of the
California regulation for individual consumers and for the State, and
summarized these savings and a simple payback period \6\ calculation in
the California Petition. (CEC, No. 1 at pp. 19-26 and 36) Savings
estimates presented by CEC were both annual and cumulative and
calculated per standard level. CEC presented its individual consumer
savings estimate as annual and as cumulative over what CEC estimated
was the average lifetime of a residential clothes washer. CEC presented
annual statewide estimates in the regulation's first-year and once the
entire stock of products had become compliant. (CEC, No. 1 at pp. 21-
24) CEC also presented a cumulative statewide savings estimate for
products operated between 2010 and 2054. (CEC, No. 1 at p. 36) The
simple payback period presented by CEC considered the payback to an
individual consumer from the California regulation as a whole.
---------------------------------------------------------------------------
\6\ Payback period is the length in time it would take the
purchaser of the appliance to recoup the increase in sales price
through annual savings in operating costs. In the case of clothes
washers, the operating cost savings include the savings in both
energy consumption and water consumption.
---------------------------------------------------------------------------
While CEC provided its estimates of the costs and benefits
associated with the California regulation, it did not provide a
sufficient explanation of the analysis supporting its estimates. CEC
stated that the ``the economic assumptions and data inputs used in this
analysis were vigorously tested in the Commission's public rulemaking
process that led to the adoption of this standard.'' (CEC, No. 1 at p.
19) However, CEC did not indicate where its rulemaking record could be
located and where within the record the relevant assumptions, data, and
analysis could be located; nor did CEC submit any of that information
to DOE. Further, CEC did not provide sufficient explanation of the
underlying assumptions and data in its petition. For example, CEC
states that ``perhaps the most important driver of the economic
analysis is the estimate of the increased first cost of washing
machines that would result from the standards.'' (CEC, No. 1 at pp. 19-
20) However, CEC did not provide a sufficient explanation of how it
derived its estimates of incremental first costs; in fact, CEC did not
even attempt to do so. CEC simply presented its estimates of
incremental first costs, by standard level, and asserted that they were
consistent with (though different than) DOE's incremental first cost
estimate for its 2000 rulemaking. (CEC, No. 1 at p. 20) Without the
underlying analysis of CEC's assumptions and data inputs, DOE is unable
to determine whether the cost and benefit estimates provided are
reasonable, and is unable to determine that the California Petition
meets EPCA requirements.
b. Analysis of alternatives.
CEC discussed several alternatives to the State regulation in the
California petition--specifically, rebates, other non-regulatory
programs, and ``reasonably predictable market-induced improvements in
efficiency.'' CEC estimated the cost to utilities and consumers of
achieving water savings through rebates for highly efficient
residential clothes washers and asserted that rebates would be much
more expensive for utilities and consumers than regulations. (CEC, No.
1 at pp. 27-32) In particular, CEC estimated participation rates and
the cost of providing rebates and purchasing compliant products to
develop weighted average costs per eligible washer for the utilities
and the consumer. CEC then compared this estimate to its estimate of
the increased cost of residential clothes washers under the California
standard. (CEC, No. 1 at pp. 30-31) Finally, CEC concluded that rebate
and educational programs would be much more expensive for utilities and
consumers than standards and that such savings would not persist after
the rebates terminated. (CEC, No. 1 at p. 32)
With regard to other non-regulatory programs, CEC cited DOE's 2000
analysis of alternatives to DOE's own energy efficiency standards for
residential clothes washers as an approximate assessment of the cost of
the proposed State standards versus alternatives. (CEC, No. 1 at pp.
32-34) DOE's 2000 analysis reviewed enhanced public education and
information, six-year financial incentives (including tax credits to
consumers and manufacturers, consumer rebates and subsidies), voluntary
efficiency targets, mass government purchases, early replacement
programs, and performance standards. (DOE, ``Regulatory Impact Analysis
for Proposed Energy Conservation Standards for Residential Clothes
Washers,'' September 2000) From this, CEC concluded that there is no
``close alternative'' to the California standards for ``cost-
effectively acquiring water savings and ensuring that the savings are
persistent over time.'' (CEC, No. 1 at p. 34)
CEC discussed the potential impact of other non-regulatory programs
on the market penetration of residential clothes washers with higher
water efficiency, as compared to the current market. However, CEC's
reliance on DOE's 2000 analysis to address the costs and benefits of
non-regulatory programs is inappropriate, and does not satisfy CEC's
burden of demonstrating by a preponderance of the evidence that the
costs, benefits, burdens and reliability of water savings resulting
from the State regulation would make such regulation preferable or
necessary when measured against alternative approaches. (42 U.S.C.
6297(d)(1)(C)(ii)) The cost and benefit estimates provided in the DOE
analysis are national estimates (CEC, No. 1 at p. 33) and do not
consider the costs and benefits of alternative California-based
programs; the estimates certainly do not evaluate the standards being
advocated in the California Petition. For example, CEC provided
estimated water savings, energy savings and the net present value for a
national voluntary efficiency target. (CEC, No. 1 at p. 33) CEC made no
assertion, or demonstration, concerning whether the estimate of water
savings, energy savings and the net present value would be comparable
if voluntary efficiency targets were set by California. In addition, we
note that the voluntary consensus alternative presented by CEC was for
a voluntary energy efficiency target, rather than a voluntary water use
reduction target.
Comparison of the costs and benefits of the California regulation
to non-regulatory alternatives available to California requires
estimates of the costs and benefits of those alternatives as
implemented by California. While the analysis of the nature and
magnitude of California's water interests are in the context of the
nation in general, the analysis of the costs and benefits of
alternatives must be in the context of the ``products subject to the
State regulation.'' (42 U.S.C. 6297(d)(1)(C)(ii)) As such, the costs
and benefits presented in the DOE analysis cited by CEC do not allow
for a comparison of the costs and benefits of alternatives in
California.
Interested parties provided additional information on water saving
strategies also being pursued within California.
[[Page 78164]]
For example, CUWCC listed some of the water saving strategies its
members have implemented, and cited their total savings and
expenditures. (CUWCC, No. 61 at pp. 1-3) Also, SDCWA cited a variety of
strategies to increase supply and limit demand. SDCWA also noted a
range of costs in $/acre-foot for various supply sources it uses and
estimates the cost it pays in $/acre-foot for conservation measures it
uses (SDCWA, No. 29 at pp. 4-5) However, the information provided was
not specific to the product ``subject to the State regulation'' (42
U.S.C. 6297(d)(1)(C)(ii)); i.e., residential clothes washers. As stated
above, EPCA requires that the consideration of alternatives be specific
to the product (or products) subject to the State regulation. Comments
from other interested parties in support of the petition did not
provide enough detail for DOE to assess the relative benefits and costs
of alternative approaches to the proposed California regulation for
residential clothes washers.
3. Unusual and Compelling State Water Interests
CEC, and the comments supporting its petition, have failed to
establish by a preponderance of the evidence that California has an
``unusual and compelling'' water interest, within the meaning of that
term as defined by EPCA. As stated above, CEC has established that the
magnitude of California's water interest is substantially different
than that prevailing in the U.S. generally. However, CEC and other
commenters supporting the California Petition have failed to establish
that the State regulation proposed in the California Petition is
necessary or preferable as compared to other alternatives.
EPCA places the burden on CEC of demonstrating by a preponderance
of the evidence that the costs and benefits of its proposed standard
make the standard preferable or necessary when compared to
alternatives. (42 U.S.C. 6297(d)(1)(C)(ii)) CEC did not provide data
and several of the assumptions underlying its cost and benefit
estimates associated with the California regulation. CEC did not
provide an evaluation of the costs and benefits of other non-regulatory
programs, beyond rebates (e.g., voluntary efficiency targets, mass
government purchases, early replacement programs), in California.
Without the ability to review and analyze the assumptions, analysis,
and data underlying CEC's cost and benefit estimates and without
information on the potential costs and benefits of non-regulatory
programs in California, beyond rebates, DOE is unable to conclude that
the California regulation is necessary or is preferable to these
alternatives.
By not demonstrating the necessity or preference of the proposed
State regulatory action as opposed to other possible alternatives, CEC
has failed to demonstrate by a preponderance of the evidence that the
State regulation is necessary or preferable to alternatives, and
therefore has failed to meet the EPCA requirement that it demonstrate
that California's water interests are ``unusual and compelling.'' DOE
has not evaluated whether CEC has met the EPCA requirement of
establishing that the proposed State regulation is ``needed'' to
address an unusual and compelling State interest. DOE has no occasion
to consider the ``need'' issue because the existence of ``unusual and
compelling interests'' has not been established.
B. Impacts of California's Standards on Manufacturing, Marketing,
Distribution, Sale or Servicing
As indicated above, under section 327(d)(3) of EPCA DOE is
prohibited by law from granting the California Petition if interested
parties establish by a preponderance of the evidence that the
California regulation will significantly burden the manufacturing,
marketing, distribution, sale or servicing of residential clothes
washers on a national basis. (42 U.S.C. 6297(d)(3)) In considering this
prohibition, EPCA requires DOE to consider ``all relevant factors''
including the extent to which the State regulation will:
(1) Increase manufacturing or distribution costs;
(2) Disadvantage smaller manufacturers, distributors or dealers, or
lessen competition;
(3) Cause a burden on manufacturers to redesign and produce the
product covered by the State regulation; and
(4) likely contribute significantly to a proliferation of State
appliance efficiency requirements and the cumulative impact such
requirements would have.
(42 U.S.C. 6297(d)(3)(A)-(D)) As discussed below, DOE has not made a
determination as to whether the California regulation would
significantly burden the manufacturing, marketing, distribution, sale
or servicing of residential clothes washers on a national basis.
1. Manufacturing and Distribution Costs
DOE received comments from manufacturers stating that the burden of
the proposed California regulation on manufacturing would be such that
the manufacturers would be required to remove several of their current
product offerings from the California market (ALS, No. 50 at p. 1;
F&PA, No. 30 at p. 2; GE, No. 55 at pp. 3 and 7; Maytag, No. 53 at p.
3; and Whirlpool, No. 17 at pp.2) Some manufacturers claimed that this
would reduce their presence in the California market (ALS, No. 50 at p.
1; and GE, No. 55 at pp. 3-4) or result in their exit from it. (ALS,
No. 50 at p. 1). (Section IV.B.2. further evaluates such comments) Most
manufacturers commented that this would limit their ability to recoup
prior investments. (F&PA, No. 30 at p. 2; GE, No. 55 at p. 7; Maytag,
No. 53 at p. 3; and Whirlpool, No. 17 at p.3) Maytag stated that the
California regulation would increase distribution complexity and costs
because products that would not comply with the California regulation
would still be shipped to distribution centers in California that
service other West Coast States. (Whirlpool, No. 17 at p. 3) Comments
from individual manufacturers on the impact to manufacturing and
distribution were presented in general terms and did not provide
specific estimates of the cost burden resulting from the potential
elimination of products from the California market.
To demonstrate the industry-wide financial impacts of attempting to
meet the California regulation, AHAM modeled industry cash flows with
the Government Regulatory Impact Model (GRIM), a tool used in several
of DOE's energy conservation rulemaking analyses. AHAM commented that
manufacturers could divert shipments or invest in new capacity to meet
the 8.5 WF. To meet the 6.0 WF standard AHAM stated that it believes
its member companies would have to invest in new manufacturing
capacity. (AHAM, No. 52 at pp. 34 and 40) According to AHAM, if
manufacturers invested in new manufacturing capacity to meet the
standard, the proposed California regulation would necessitate $150
million of additional manufacturer investment. (AHAM, No. 52 at p. 38)
AHAM's GRIM analysis modeled the effect of capital investments to
meet the 8.5 WF level in 2007 and the 6.0 WF level in 2010. According
to AHAM's GRIM analysis, the proposed California regulations would
result in a decline in industry value \7\ of $100 to $641 million
[[Page 78165]]
dollars, depending on assumptions regarding gross margins. According to
AHAM estimates, these numbers reflect 16 to 103 percent share of total
industry value, respectively. (AHAM, No. 52 at p. 39) In addition, AHAM
commented that additional costs would be required for spending on
``engineering, product development, product introduction and marketing
to support the introduction of new models for California consumers.''
(AHAM, No. 52 at p. 38)
---------------------------------------------------------------------------
\7\ Industry value refers to the net present value of cash flows
for the industry due to manufacturers' sale of products in the U.S.
market. DOE uses change in industry value as a metric for measuring
the potential impacts of an energy efficiency standard on
manufacturers. See, for example, ``Final Rule Technical Support
Document (TSD): Energy Efficiency Standards for Consumer Products:
Clothes Washers'', Manufacturer Impact Analysis, Chapter 11,
December 2000).
---------------------------------------------------------------------------
AHAM's methodology of using GRIM to assess the magnitude of
manufacturer impacts resulting from the California regulation is a
useful tool for DOE to evaluate the California petition. However, DOE
notes that the results from GRIM are very sensitive to three cost
elements factored into the model: conversion capital expenditures,
product conversion expenses, and variable production costs. Given the
importance of these data inputs to the model DOE must evaluate the
reasonableness of these estimates before it can draw conclusions about
the significance of the results projected by GRIM. AHAM did not provide
sufficient substantiation of the values it assigned these cost inputs
for DOE to evaluate appropriately the model's results.
AHAM provided aggregated figures of $150 million for conversion
capital expenditures (AHAM, No. 52 at p. 38) and $105 million for
product conversion expenses (AHAM, No. 52 at pp. 46 and 48). According
to AHAM's presentation of its analysis, it appears that conversion
capital expenditures represent the capital needed for three
manufacturers to prepare a total production capacity of 1.5 million
residential clothes washers per year. (AHAM, No. 52 at pp. 46 and 48)
AHAM did not provide a basis for the total production capacity value.
In fact, the value relied on by AHAM , according to AHAM's own
projected shipment numbers, appears to exceed the expected annual
demand of the California market. (AHAM, No. 52 at pp. 44-45) Moreover,
AHAM's comment would have benefited from including separate estimates
for manufacturing equipment, tooling, and buildings and a
quantification and description of the stranded assets; information that
could support the conversion capital costs projected by AHAM.
Justification of the estimates along with references to source data,
where appropriate, would also have been useful.
Similarly, for product conversion costs DOE would have benefited
from disaggregated estimates and descriptions of engineering, product
development, product introduction, and marketing costs. Additionally,
AHAM was not clear as to whether current products which meet the
California regulation would need to undergo substantial redesign, and
if so why that would be required.
Estimates of the incremental variable product costs are also a
major element contributing to the magnitude and uncertainty of GRIM
results. AHAM and CEC have vastly different estimates for the
incremental consumer prices of lower water factor residential clothes
washers. In its GRIM analysis AHAM calculated Costs of Goods Sold
(COGS) as a percentage of estimated future residential clothes washer
prices. (AHAM, No. 52 at p. 46) AHAM stated in its comments that ``the
basic bill of materials needed to achieve low water usage at acceptable
wash and rinse performance adds significant costs that can not be
avoided through experience or productivity improvement.'' (AHAM, No. 52
at p. 32) However, AHAM did not present a breakdown of the basic bill
of materials that underlies its estimated incremental production costs.
AHAM provided DOE with a detailed model to estimate the cost
implications to manufacturers resulting from the California regulation.
However, AHAM failed to provide sufficient discussion of the
assumptions and inputs employed in the model. Without an understanding
of the model's assumptions and inputs DOE is unable to appropriately
evaluate the results, and therefore AHAM has failed to demonstrate by a
preponderance of the evidence the extent to which the proposed
California standard would increase the manufacturing and distribution
costs of manufacturers and distributors. (42 U.S.C. 6297(d)(3)(A))
2. Effect on Competition and Smaller Entities
AHAM and several manufacturers commented that the California
standards would affect different types of manufacturers differently. In
particular, AHAM commented that the engineering, product development,
and product introduction costs plus capital conversion investments of
introducing a new model will exceed $40-50 million for most
manufacturers, regardless of actual production volume.'' (AHAM, No. 52
at p. 41) AHAM also stated that manufacturers with smaller market
shares might not be able to support investment in the design and
production of residential clothes washers with WF levels capable of
meeting the standard. (AHAM, No. 52 at p. 41) AHAM did not provide a
basis for its $40-50 million dollar estimate and did not provide a
discussion of the level of investment manufacturers with smaller market
shares would be unable to support.
ALS commented that production volume lost from the removal of its
non-compliant top-loading washers in California would not be fully
replaced by the sale of its compliant front-loading washer. It stated
that foreign manufacturers with lower manufacturing costs, due to
``lower labor costs and unequal or non-existent employee benefit
costs,'' would have a competitive advantage by being able to offer
compliant products at a lower cost. (ALS, No. 50 at pp. 2 and 6)
GE claimed that its sales volume would fall because its limited
product offerings would not be able to compete with ``larger and
specialty marketers.'' (GE, No. 55 at p. 4) Maytag commented that
competitors larger than itself would have a better ability to absorb
additional costs. (Maytag, No. 53 at p. 3)
AHAM commented that several manufacturers would likely continue to
sell in California only if their current products (i.e., those products
already in the market place) met the proposed California standard.
Furthermore, it stated that it believes that some low-volume
manufacturers would likely leave the California market instead of
making additional investments in new products. (AHAM, No. 52 at p. 41)
Though they did not specify their market volumes, both GE and ALS
commented that they currently have limited product offerings that
comply with the proposed California standards and that they believe
their market presence in California would be reduced as a result of the
California regulation. (GE, No. 55 at pp. 3-4; ALS, No. 50 at pp. 1-2)
In particular, GE commented that it ``does not have a large enough
marketshare over which to spread the huge costs of investment to
develop a more complete line of laundry product offerings[.]'' (GE, No.
55 at p. 4)
Fisher & Paykel Appliance commented that it has experience with
developing residential clothes washers to meet water factor criteria in
Australia. (F&PA, No. 30 at p. 1) Furthermore, it commented that it
currently produces high efficiency washers for a niche market and that
the 8.5 WF standard would likely have a small impact on it (though its
current product does not meet the 6.0 WF level). (F&PA, No. 30 at p. 2)
Maytag commented that it believes small retailers could be
adversely impacted by the California proposed regulations, bearing an
uneven burden compared to larger retailers. It commented that the short
time-period to the proposed effective dates would ``shock'' smaller
retailers'' business
[[Page 78166]]
models and ``force them out of business.'' (Maytag, No. 53 at p. 5)
CEC commented that the California regulation would not likely have
an adverse affect on small businesses or on sales competition. (CEC,
No. 1 at p. 40) In particular, CEC correlated DOE 2001 energy standards
with a growth in the types of residential clothes washer technologies
and features, and in the number of qualifying models on the market.
Furthermore, CEC commented that the number of manufacturers selling in
the U.S. has grown in the past five years despite concentration in many
business sectors.\8\ According to CEC, both the growth in residential
clothes washer technologies and the growth in the number of
manufacturers selling residential clothes washers in the U.S. indicate
that there would be no reason to expect that the California standard
would have a negative impact. (CEC, No. 1 at p. 40).
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\8\ DOE notes, however, that since this proceeding started,
Maytag Company has been purchased by the Whirlpool Corporation,
further concentrating the clothes washer industry. Based on DOE
estimates of data reported in Appliance Magazine, DOE estimates that
Whirlpool Corporation accounts for approximately 71 percent of
clothes washer sales, GE 17 percent and the remaining 12 percent is
spread over the remaining manufacturers, nationally.
---------------------------------------------------------------------------
DOE is concerned about the ability of smaller manufacturers to
spread their investment costs over lower production volumes. Analysis
from DOE's January 2001 final rule indicated that cost structures did
vary between small and large manufacturers. 66 FR 3314. In the TSD that
accompanied the January 2001 final rule, DOE noted that ``manufacturing
large volumes and optimizing production for these levels can create a
significant cost advantage. Smaller manufacturers of clothes washers
could thus be affected more negatively than other manufacturers by any
proposed standard because of their need to spread fixed costs over
smaller production volumes.'' (DOE, ``Final Rule Technical Support
Document (TSD): Energy Efficiency Standards for Consumer Products:
Clothes Washers'', Manufacturer Impact Analysis, pp. 11-53 and 11-54,
December 2000)
Manufacturers did not provide cost estimates for redesigning their
products to meet the WF levels of the California regulation. Further,
manufacturers did not provide analysis of spreading such costs across
production volumes. DOE recognizes that smaller manufacturers may have
a significantly more difficult time in responding to the WF levels in
the California regulation. However, manufacturers did not provide cost
data that would allow DOE to determine the extent of this difficulty
and its significance to smaller manufacturers, and therefore comments
opposed to the California Petition did not adequately demonstrate the
extent to which the proposed California regulation would disadvantage
smaller manufacturers, distributors, or dealers, or lessen the
competition in the sale of residential clothes washers in California.
(42 U.S.C. 6297(d)(3)(B))
3. Redesign and Production
In assessing the impacts of a State regulation if a waiver were to
be granted, EPCA requires DOE to consider the extent to which the State
regulation would cause a burden on manufacturers to redesign and
produce the covered product. (42 U.S.C. 6297(d)(3)(C)) While this
analysis is similar to the evaluation of the resulting manufacturing
and production costs, EPCA directs DOE to specifically consider the
extent to which the regulation would result in a reduction--
(i) In the current models, or in the projected availability of
models, that could be shipped on the effective date of the
regulation to the State and within the United States; or
(ii) in the current or projected sales volume of the covered
product type (or class) in the State and the United States[.]
(42 U.S.C. 6297(d)(3)(C)(i) and (ii)) Evaluation under section
327(d)(3)(C) considers the availability of compliant units by the
effective date and any impact on the total number of sales for the
covered product. Essentially, DOE must consider whether compliant
residential clothes washers would be available by the effective date
and whether the California standard would impact the overall sale of
residential clothes washers.
AHAM commented that manufacturers could respond to the 8.5 WF by
producing redesigned compliant units, shifting production in favor of
compliant front-loaders and non-conventional top-loaders, shifting
distribution of compliant front-loaders and non-conventional top-
loaders to California and away from the general U.S. market, or,
presumably, through a combination of these responses. (AHAM, No. 52 at
pp. 34 and 40) AHAM stated that for the 8.5 WF level, it is possible
that there is sufficient U.S. capacity to meet California demand under
the California regulation by largely eliminating shipments of compliant
units to other States. (AHAM, No. 52 at p. 34) AHAM also stated,
however, that the design of such products is targeted towards specialty
customers and is not geared towards the demands of the average
consumer; i.e., current unit designs that would comply with the
proposed California regulation are typically higher cost models not
``optimized for the vast majority of the market that wishes simple,
reliable, low cost washers.'' (AHAM, No. 52 at p. 40)
With regard to demand for residential clothes washers, AHAM stated
that due to price elasticity and what it asserted where necessary
design changes, shipments to California will decline as consumers
choose to repair current washers as opposed to purchasing new, more
expensive washers. (AHAM, No. 1 at p. 38) Based on its analysis, AHAM
projected that shipments of washers would decline by 10 percent from
2007 through 2009, by 20 percent in 2010 through 2012, and recover
between 2013 and 2015. (AHAM, No. 52 at p. 39)
AHAM did not provide a breakdown of the costs associated with
shifting production in favor of compliant front-loading and non-
conventional top-loading residential clothes washers or redistributing
compliant residential clothes washers to California. Further, AHAM did
not indicate whether or why such changes to manufacturing and
distribution could be accomplished in the lead times provided for under
the California regulation. The comments received did not provide
specific information indicating whether manufacturers would have
difficulty in shifting production and distribution within the lead time
provided by the California regulation in order to provide sufficient
products for the U.S. market in 2007. Therefore, commenters opposed to
the California Petition have not provided sufficient evidence or
analysis for DOE to determine the extent to which the proposed
California regulation would cause a burden to manufacturers to redesign
and produce residential clothes washers that would comply with the
proposed California regulation. (42 U.S.C. 6297(d)(3)(C))
4. Proliferation of State Standards
Currently, no other State has petitioned DOE for a waiver of
preemption regarding the water efficiency of residential clothes
washers. If other States petitioned for a waiver, DOE would consider
the extent to which other States chose standards levels identical to
those proposed by California, as well as levels proposed by any other
States. Furthermore, DOE would consider whether the cumulative impact
of similar or differing State standards would burden the manufacturing,
marketing and distribution of residential clothes washers nationally.
However, DOE did not consider the impact of other State petitions
because currently California is
[[Page 78167]]
the only State to have submitted a petition under section 327 of EPCA.
5. Significant Impact on Manufacturing, Marketing, Distribution, Sale,
or Servicing
Interested parties have not demonstrated by a preponderance of the
evidence that the California regulation would significantly burden
manufacturing, marketing, distribution, sale or servicing of the
covered product on a national basis. Interested parties asserted that
the California regulation would increase manufacturing and distribution
costs, would negatively impact smaller manufacturers, and that the
California regulation could result in redistribution of product. As
discussed above, however, the interested parties did not provide
adequate justification to support these assertions. Manufacturers did
not provide detailed cost estimates and AHAM's analysis did not provide
justification for its underlying assumptions. Therefore, the interested
parties opposed to the California Petition did not satisfy their burden
of providing sufficient information to allow DOE to determine that, if
the California Petition were granted, the proposed California
regulation would significantly burden manufacturing, marketing,
distribution, sale or servicing of the residential clothes washers on a
national basis. (42 U.S.C. 6297(d)(3))
C. Availability of Product Performance Characteristics and Features
1. Top-Loading Residential Clothes Washers
Under EPCA section 327(d)(4), DOE is prohibited by law from
granting California a waiver of preemption if interested persons have
demonstrated by a preponderance of the evidence that California's
proposed regulation is likely to result in the unavailability in
California in any covered product type (or class) with performance
characteristics (including reliability), features, sizes, capacities,
and volumes that are substantially the same as those generally
available in the State at the time of the Secretary's finding. (42
U.S.C. 6297(d)(4))
Manufacturers' comments indicated that the design changes necessary
to comply with the 6.0 WF level would eliminate traditional top-loading
residential clothes washers from the California market. (AHAM, No. 52
at pp. 1 and 32; ALS, No. 50 at pp. 2 and 6; Whirlpool, No. 17 at p. 1;
Maytag, No. 53 at p. 3; GE, No. 55 at p. 3) Maytag stated that
traditional top-loading residential clothes washers currently represent
at least 60 percent of California's residential clothes washer sales.
(Maytag, No. 53 at p. 3) Data submitted by AHAM, including ENERGY STAR
data, indicate that only front-loading residential clothes washers
currently meet the 6.0 WF level; current models of top-loading
residential clothes washers, regardless of design, have a WF level of
greater than 6.0. (AHAM, No. 52 at p. 22) In its comments, CEC
identified a top-loading, horizontal-axis residential clothes washer as
a potential design to meet the 6.0 WF level. (CEC, No. 1 at p. 46; CEC,
No. 79 at p. 13) However, the model to which CEC referred (CEC, No. 1
at p. 46) does not currently meet the 6.0 WF level, and would require
redesign. Moreover, the residential clothes washer identified by CEC
appears to represent a small portion of the market.
A number of stakeholders, including the CUWCC, PG&E, NRDC,
Consolidated Smart Systems (CSS) and several California entities
commented that the California market currently offers a variety of
models that can meet the 8.5 and 6.0 WF levels. (CUWCC, No. 61 at p. 5;
NRDC, No. 41 at p. 2; PG&E, No. 44 at pp. 6-7 and 9; CSS, No. 77 at p.
2) DOE is aware that several models of residential clothes washers in
the market today can meet the 8.5 WF and 6.0 WF levels. However, DOE
also notes that this discussion of the availability of products,
generally did not distinguish between front- and top-loading
residential clothes washers.
DOE knows of no top-loading residential clothes washers on the
market that meet a 6.0 WF. Neither CEC nor any other commenter has
asserted or demonstrated that such a product exists. As noted above,
several stakeholders commented that, while existing residential clothes
washers can currently meet the 6.0 WF level, there is no indication
that any of these residential clothes washers are top-loading. For
example, according to data on ENERGY STAR products submitted by AHAM,
the lowest WF of a top-loading washer currently on the market is
approximately 6.3. (AHAM, No. 52 at p. 22; and CEC, No. 1 at p. 46) DOE
finds that it has been established by a preponderance of the evidence
that there are no top-loading residential clothes washer in the current
market that would comply with the 6.0 WF level of the proposed
California regulation, and that therefore the proposed California
standard would result in the unavailability of top-loading residential
clothes washers in the California market. Therefore, even had CEC met
its requirements under EPCA, the California Petition should be rejected
on this additional ground.
2. Other Product Classes
EPCA states that the failure of some classes (or types) to meet the
criterion of the State regulation shall not affect DOE's determination
on whether to prescribe a rule for other classes (or types). (42 U.S.C.
6297(d)(4)) As noted above, DOE has established energy efficiency
standards for five classes of residential clothes washers, including
top-loading residential clothes washers. (10 CFR 430.32(g)) However,
the California Petition in its discussion of the impact of the
California regulation does not distinguish between classes of
residential clothes washers and therefore, the question of whether such
levels would be appropriate for individual classes of residential
clothes washers is not at issue.
Even if it were, however, DOE would be concerned that differing
maximum WF levels established for specific classes of residential
clothes washers could have negative consequences for water savings in
California. Regulating more efficient residential clothes washers like
front-loading residential clothes washers to a 6.0 WF, while allowing a
significantly less stringent WF level for top-loader washers, would
likely further increase the existing price differential between top-
and front-loading washing machines. (AHAM, No. 52 at pp. 32 and 35) The
result of this change in price difference could well increase purchases
of less water efficient residential clothes washers, and potentially
offset the intended benefit from setting a water efficiency standard
for certain but not all classes of residential clothes washers. (See,
AHAM, No. 52 at pp. 32 and 35)
V. Denial
As discussed above, the California Petition requests a waiver of
Federal preemption for a State regulation that establishes effective
dates not permitted under EPCA. Therefore, DOE denies the requested
waiver.
Second, in order to grant a petition for a waiver from Federal
preemption, a State must show by a preponderance of the evidence that
its regulation is needed to address unusual and compelling State or
local water or energy interests. Such a showing requires that a State
demonstrate that its interests are substantially different in nature or
magnitude compared to those in the United States generally and that the
State standards are ``preferable or necessary'' when compared to
alternatives, including market-induced ones. As discussed above, DOE
has determined that the California Petition has demonstrated by a
preponderance of
[[Page 78168]]
the evidence that the State's water interests are substantially
different in magnitude from those present in the United States
generally. CEC and comments supporting the California Petition,
however, failed to provide sufficient information to demonstrate by a
preponderance of the evidence that the proposed State standard is
preferable or necessary when compared to alternative approaches. Since
CEC has established only one of the two elements necessary to show an
unusual and compelling State interest, DOE denies the waiver request.
Third and finally, even if CEC had established by a preponderance
of the evidence that California's water interests are unusual and
compelling, DOE is denying the waiver request because interested
parties have established by a preponderance of the evidence that the
California regulation would likely result in the unavailability of top-
loading residential clothes washers in California. Therefore, DOE is
prohibited from prescribing a rule that would grant the California
Petition.
VI. Approval of the Office of the Secretary
The Secretary of Energy has approved publication of this notice.
Issued in Washington, DC, on December 20, 2006.
Alexander A. Karsner,
Assistant Secretary, Energy Efficiency and Renewable Energy.
[FR Doc. E6-22270 Filed 12-27-06; 8:45 am]
BILLING CODE 6450-01-P