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, 78157-78168 [E6-22270]

Agencies

• DEPARTMENT OF ENERGY
• Office of Energy Efficiency and Renewable Energy
• Energy Efficiency and Renewable Energy Office

[Federal Register Volume 71, Number 249 (Thursday, December 28, 2006)]
[Notices]
[Pages 78157-78168]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E6-22270]



[[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 th