ested parties. Thus, the DoJ process is a "black box" and a potentially biased process. DoJ needs a broader and better documented process for its concerns to receive the same weight as other data in this rulemaking that have been publically-vetted and documented.

From material published by DOE, concerns about impacts on manufacturers and competition primarily relate to the fact that many manufacturers make much of their profits on "high-end" units with extra features and above average efficiency. The concern is that a minimum standard at SEER 13 will make it hard to differentiate a higher efficiency unit for high-end sales. We disagree for two reasons. First, with new compressors, new heat exchangers, and other technical improvements it is possible to produce reasonably-priced SEER 14 and SEER 15 units. For example, just this week Amana announced a full line of SEER 15 units that use single-speed compressors (single-speed compressors are less expensive than the multi-speed compressors that many other manufactures use to achieve SEER 15).32 Second, we believe it is possible for manufacturers to develop and successfully market value-added SEER 13 and SEER 14 units that perform better in the field than baseline SEER 13 units. Due to common installation problems as well as optimization of many air conditioner designs for a single test temperature, many air conditioners perform at a lower efficiency in the field than in a laboratory. My organization is now working with utilities, federal, state and regional organizations, and some manufacturers to develop a voluntary program to promote "robust" air conditioners that warrant a price premium because they perform better in the field.33 It is products like these that will allow manufacturers to continue to sell high-end products and continue to earn the profits they depend on.

Statements by DOE officials also ignore several major errors in the DOE analysis. First, the DOE analysis is based on summer 1996 electricity prices, adjusted downward for assumed long-term declines in electricity prices. In reality, as wholesale markets and many retail markets have restructured, electricity pricing is increasingly based on season of use (and often time of use as well). A December 2000 analysis of U.S. wholesale electricity prices in 1998-2000 by Synapse Energy Economics found that electricity prices in the summer afternoons and evenings when air conditioners are primarily used are 2-9 cents per kWh higher than the 1996 prices used by DOE.34 Second, the DOE analysis is based on today's technologies for achieving improved efficiencies. New technology developments and continuing productivity improvements will bring these costs down by 2006 when the new standard goes into effect, just as they substantially reduced the costs of the current SEER 10 standard relative to prior DOE and industry projections.35 If DOE is going to reassess the central air conditioner standard, it needs to correct these analysis errors before proceeding.

The Administration's attempt to roll back the air conditioner standard also ignores clear language in NAECA that new standards cannot be set that are weaker than previous standards, and several court decisions that a new Administration faces a high burden of proof before it can roll back final rules of a previous Administration. When Congress passed NAECA it was concerned about administrative rollbacks of standard levels and added a specific provision that "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." The Bush Administration's proposal to roll back the air conditioner standard violates this provision. The Bush Administration proposal also is based on very limited technical arguments, and will probably have trouble getting past the Supreme Court decision that “an agency changing its course by rescinding a rule is obligated to supply

32 Schultz, Matt, Product Manager, Amana Heating and Air Conditioning. Email dated July 9, 2001.

33 Sachs. 2001. "Draft Prospectus: Sustained High Performance Central Air Conditioners and Heat Pumps: Delivering Energy Efficiency in Use." Washington, DC: American Council for an Energy-Efficient Economy.

34 Woolf, Biewald, Allen, White and Johnston. 2000. Marginal Price Assumptions for Estimating Customer Benefits of Air Conditioner Efficiency Standards. Cambridge, MA: Synapse Energy Economics.

35 In 1982, DOE estimated that the incremental cost to raise air conditioner efficiency to SEER 10 would be $349 (DOE, 1982, Consumer Products Efficiency Standards, Engineering Analysis Document). U.S. Census Bureau data shows that when the SEER 10 standard took effect, air conditioner prices did not go up at all (Current Industrial Reports, Refrigeration, Air Conditioning, and Warm Air Heating Equipment). Interestingly, the Air Conditioning and Refrigeration Institute (the industry trade association) was even farther off the mark; in the early 1980's they estimated that the incremental cost of a SEER 10 unit would be $762 (as cited in CEC. 1984. "Staff Report on Proposed Revision of Appliance Efficiency Standards for Central Air Conditioners Under 65,000 Btu/Hour, P400-84-015. Sacramento, CA: California Energy Commission).

a reasoned basis for the change beyond that which may be required when an agency does not act in the first instance." 36 Finally, all of the actions to date to roll back the standard have been made without any opportunity for public comment, which appears to be in violation of the Administrative Procedures Act. Several state attorney generals and environmental, consumer and low-income advocacy organizations recently brought suit challenging these actions.37 Given the energy problems facing the U.S., it would be far more productive to put resources into developing and implementing new policies to save energy, rather than using large amounts of resources to pursue a legally-questionable action that will increase energy use.

At today's hearing the President of the Air Conditioning and Refrigeration Institute (ARI) will also testify. Based on past ARI statements, in addition to some of the some arguments DOE is making, he is likely to argue that DOE underestimated the installation costs of meeting a new air conditioner standard, that a SEER 13 standard would be particularly burdensome in manufactured housing, that a SEER 13 standard would eliminate approximately 85% of current units from the market, and that a SEER 13 standard will raise unemployment.38 In our opinion, most of these allegations are wrong and others are half-truths. Specifically:

• DOE's analysis does consider installation costs. While some SEER 13 units are significantly larger than current units, others are not. For example, Goodman Manufacturing's SEER 13 units are only about three inches larger than basic units. The size of the unit depends on the technologies that a manufacturer uses to improve efficiency, and some of these technologies do not increase unit size.

• DOE's final rule specifically treats "space constrained products," such as units for manufactured housing, as a separate product class. Required efficiency levels for this special class have yet to be decided.

• Manufacturers are correct that a substantial majority of current products do not meet the SEER 13 standard. However, an even higher percentage of then-current products did not meet the SEER 10 standard when it was enacted and manufacturers had little difficultly meeting that standard.39

• A SEER 13 standard will increase employment, not reduce it. According to DOE's analysis, employment in the industry will modestly increase since SEER 13 units require more materials and labor than SEER 10 units.40 An old DOE analysis does find that overall national employment will modestly decline with a SEER 13 standard due to the impacts of higher air conditioner costs on consumer purchases,41 but that analysis was based on very high estimates of the extra cost to produce SEER 13 units. DOE has substantially decreased its cost estimates but did not revise the national employment analysis before publishing the SEER 13 final rule.

Senator Barbara Boxer has introduced a resolution (S.J. Res. 15) calling for Congressional disapproval of the rule submitted by DOE relating to the postponement of the effective date of central air conditioner standards under the terms of the Congressional Review Act of 1995. We thank Senator Boxer for introducing this resolution and for bringing attention to this important issue. We recommend that this Committee should do all it can to encourage the Administration to drop its rollback proposal.

36 Motor Vehicle Manufacturers Association v. State Farm Mutual Ins Co. et al., 463 U.S. 29 (1983).

37 State of New York and State of Connecticut, Petitioners against Spencer Abraham. June 18, 2001. "Petition for Review." New York, NY: U.S. District Count, Southern District of New York. Also, a similar suit was filed the same day by Natural Resources Defense Council, Consumer Federation of America, and Public Utility Law Project.

38 ARI. “ARI Asks DOE to Increase Efficiency by Fairer 20 Percent," press release. April 6, 2001. Arlington, VA: Air Conditioning and Refrigeration Institute.

39 In 1986, when NAECA was negotiated, probably less than 10% of then-current models met the 1992/93 NAECA standards. ARĪ data from 1984 (in "ARI Comparative Study of Energy Efficiency Ratios") indicate that 6.8% of unitary air conditioner shipments had a SEER of 10 or more while only 4.8% of heat pumps exceeded a SEER of 10. We do not have 1986 data, but during the mid-1980s, SEER grew only modestly, hence our estimate that less than 10% of models in 1986 had a SEER of 10 or more.

40 DOE. 2000. Technical Support Document: Energy Efficiency Standards for Consumer Products: Residential Central Air Conditioners and Heat Pumps. Oct. Washington, DC: U.S. Dept.

of Energy.

41 Ibid.

REVISIONS TO OTHER CURRENT STANDARDS

Under existing legislation, DOE is supposed to review and revise existing appliance and equipment efficiency standards every five years. Unfortunately, DOE is very far behind in this process. For example, DOE is just now starting a proceeding to revise the residential furnace standard, a proceeding that under current legislation should have been completed by Jan. 1, 1994. Similarly, DOE has not yet started the revision process for dishwashers, even though that process should have been completed in 1996. And I discussed earlier, DOE is still working on a rulemaking for distribution transformers that was originally called for in the Energy Policy Act of 1992. There is a need to work through this backlog which will require improved management at DOE as well as increased annual appropriations.

According to our analysis, if DOE can complete the major scheduled rules, substantial energy and financial savings will result. Our analysis includes development of new standards on commercial air conditioners, dishwashers, commercial boilers, and reflector lamps over the next few years, and further revisions to refrigerator, water heater, and residential air conditioner standards in the longer term. We estimate that in 2020 these standard revisions can save 53 billion kWh of electricity and 187 trillion Btu's of natural gas. The electricity and gas savings together will reduce consumer energy bills by more than $4 billion annually by 2020.

Under DOE's appliance standards "Process Improvement Rule" priorities are set in the summer for rulemakings for the new fiscal year. With the change in Administration, this annual process is modestly delayed but is scheduled to begin soon. We recommend that after this annual process is completed in September or October, that this Committee schedule an oversite hearing to review DOE plans for standards rulemakings in 2002, including any new rulemakings that may be called for under comprehensive energy legislation that will likely be pending at that time. Such an oversite hearing should explore options for "picking up the pace" so that rulemakings can be completed in a more timely manner, and perhaps also with less controversy than some of the recent rulemakings.

CONCLUSION

Appliance and equipment efficiency standards have been one of the federal government's most effective energy-saving policies. These standards have also provided substantial net economic benefits to consumers and businesses and contributed to reduced emissions of air pollutants. It has been nearly a decade since the scope of the appliance and equipment standards program has changed. Based on state and voluntary standards developed over this past decade, Congress should expand the scope of the standards program to include 11 additional products. These additional standards will reduce energy use in the residential and commercial sectors by about 5% in 2020, reduce peak electrical demand by the equivalent of 40-50 new power plants, and result in net savings to consumers and businesses of more than $80 billion. The standards we recommend are primarily based on state and voluntary standards that are either now in effect or that are expected to be finalized in the next month or so. These state and voluntary standards have not been controversial. Hopefully these same standards can also be adopted at the national level without controversy. To the extent issues arise, ACEEE stands ready to provide technical information and to negotiate in good faith with affected trade organizations, similar to the role we played prior to the adoption of standards legislation in 1987, 1988, and 1992.

With the savings from standards on new products, plus savings from existing standards (including the SEER 13 air conditioner standard) and from new standards now being considered by DOE, U.S. electricity use in 2020 will be reduced by more than 10% relative to what use would be without the federal standards program. While these savings will not solve U.S. energy problems, they will make a significant contribution towards bringing U.S. energy supply and demand into better balance, helping our environment, our economy, and our pocketbooks.

That concludes my testimony. Thank you for the opportunity to present these views.

The CHAIRMAN. Thank you very much.

Mr. Rees, go right ahead.

STATEMENT OF CLIFFORD REES, JR., PRESIDENT, AIR CONDITIONING AND REFRIGERATION INSTITUTE, ARLINGTON, VA Mr. REES. Mr. Chairman, thank you very much for the opportunity to appear before the committee today. As you mentioned, I

represent the Air Conditioning and Refrigeration Institute, or ARI, a national trade association of over 240 manufacturers who produce over 90 percent of North American-produced central air conditioners and commercial refrigeration products. I am here today to voice our support for the Department of Energy's proposed 20-percent increase in the SEER standards for central air conditioners and heat pumps.

The industry has worked diligently over the last 20 years to improve the energy efficiency of residential air conditioners and heat pumps. We are proud that we have been able to provide our customers with equipment that is at least 40 percent more efficient than 20 years ago. Concurrently, the industry is making a seamless transition to nonozone-depleting refrigerants, and has introduced new compressor technologies, while continuing to offer the consumer affordable choices for their comfort, for their health and safety.

As you know, the current SEER standard is 10, and has been since it was initially set in 1992. For the past few years, DOE has conducted rulemaking procedures to determine new, more rigorous, and minimum standards for the industry to meet. I congratulate the U.S. Senate for encouraging the development of the Department of Energy's process improvement rule, which has created a balanced, rational, inclusive approach to rulemaking.

I commend the Department's staff for their openness and diligence throughout the process, and their fairness in meeting the economically justified and technologically feasible standard set forth in the National Appliance Energy Conservation Act. Parenthetically, let me add that whoever the ultimate decisionmaker is in setting the standard, the decisionmaker would benefit greatly from analyzing carefully over $2 million of DOE analyses, including those done by independent contractors, which were developed during the residential air conditioner and heat pump rulemaking.

During the rulemaking, the overwhelming majority of the airconditioning industry, indeed, 237 of ARI's 240 members, came to support, I will admit, however, in some cases reluctantly, a 20-percent increase in the standard, and that is to say, a 12-SEER.

I say reluctantly only because even a 20-percent increase will carry with it significant burdens in cost, and impact on consumers and considerable redesign and retooling cost in the industry. I want to assure the chairman, however, that while this appears to be a split within my own membership in my association, in fact we are unanimous in supporting the goal of improved conservation and energy efficiency. The split is a difference of opinion about how best to go about attaining that goal.

I do not want to spend my time today speaking to you about the last-minute effort in January at DOE to impose a 30-percent increase in the standard, and I am not here to tell you that a 13SEER minimum standard cannot be implemented by the industry. Obviously, air conditioners with a 13-SEER are manufactured and sold today. So are 14's, 15's, and 16's. They cost a lot more to make, and we are very proud of these products, but they are, in fact, more expensive, yet they are made and sold to the fortunate few who can afford them and to those who believe they will recoup the added cost through energy savings.

This latter group lives predominantly in the Southern tier of the United States, primarily Florida, Texas, Arizona, and southern California. Frankly, if the industry had only its immediate self-interest in mind, it would rally behind the 13-SEER standard and take the money and run, but the short-term monetary boon to the industry from 13-SEER standard would be outweighed by the impact on the industry's customers, on jobs, and ultimately on the industry.

I want to summarize briefly what a 30-percent increase in the SEER standard would mean to consumers, to jobs and, in the long run, the industry. First, as the map of the United States attached * to my testimony clearly demonstrates, there will be no meaningful economic payback for the overwhelming majority in this country. 75 percent of consumers purchasing of 13-SEER will incur a net cost.

In other words, at the end of the lifetime of the product the savings and operating costs will not be sufficient to offset the incremental first cost of the product. The situation is even worse for low-income consumers. 83 percent of them will not benefit from the 13-SEER standard. In effect, the 13-SEER only makes clear economic sense in the tip of Florida and the tip of Texas. This simply makes no sense as a national policy.

Indeed, it is economically dangerous to consumers and industry alike, and runs counter to our mutual goal of energy conservation, and there could be a significant health risk to senior citizens and lower income families who rely upon affordable air conditioning today not just for their comfort but for their health and for their safety.

Second, the increased cost to the consumer going from a 10SEER product to a 13-SEER product will be over $700. In what I believe to be an incredibly, and in fact what is an incredibly pricesensitive market, I believe that the average consumer who still has a choice could very well make the choice of repairing and keeping the old equipment, which is quite often and could be even as low as a 6-SEER, but even with 9-SEER equipment retaining that old equipment is less energy-efficient, and it runs counter to our mutual goal, and God forbid that those who rely upon air conditioning not just for their comfort but for health and safety, but would make the decision that they could not afford to replace the equipment at all.

The increased cost of a 13-SEER minimum standard will have a disproportionate impact on lower income homeowners and the elderly. It is simply inaccurate to suggest that those in low income brackets do not purchase homes and therefore would be unaffected by the cost of a 13-SEER standard. There are 13 million homeowners with incomes below $21,000. There are 34.8 million with incomes below $52,000, and $52,000 may sound like a lot of money, but if you are trying to house, feed, clothe, and education children, this additional cost without the return on the investment is a significant burden.

*Attachments have been retained in committee files.