In July, the U.S. Department of Energy (DOE) announced that it is seeking public input on how to effectively review its existing regulations and reduce regulatory burdens, pursuant to Executive Order 13563. EO 13563, signed by President Obama in January 2011, instructs regulatory agencies to “consider how best to promote retrospective analysis of rules that may be outmoded, ineffective, insufficient, or excessively burdensome, and to modify, streamline, expand, or repeal them in accordance with what has been learned.” This retrospective review is meant to ensure that regulations achieve their intended outcomes and to improve agencies’ use of ex ante analysis by comparing projected outcomes with actual results. To that end, the DOE is seeking input on how best to promote periodic retrospective reviews of its rules and how to select the rules to review.

The DOE should take three steps to further its retrospective review efforts. First, it should incorporate plans for retrospective review into its economically significant or major rules. Second, it should allow enough time between releases of new energy efficiency standards to allow for a full review of each rule’s effects before issuing updated rules. Third, it should use the Herfindahl-Hirschman Index (HHI) to measure whether its existing energy efficiency standards have had negative effects on competition in the regulated industries.

Retrospective review / As part of its ongoing Retrospective Review Comment Project, the George Washington University Regulatory Studies Center examines significant proposed regulations to assess whether agencies propose retrospective review as part of their regulations, and provides agencies with suggestions on how best to incorporate plans for retrospective review into their proposals. However, our research indicates that many agencies—including the DOE—are not currently complying with EO 13563 and OMB’s direction to write and design rules “so as to facilitate retrospective analysis of their effects.”

In his June 14, 2011 implementing memo on retrospective review, then-administrator of the Office of Information and Regulatory Affairs Cass Sunstein stated that “future regulations should be designed and written in ways that facilitate evaluation of their consequences and thus promote retrospective analyses and measurement of ‘actual results.’ ” In its 2013 Report to Congress on the Benefits and Costs of Federal Regulations, the Office of Management and Budget states that such retrospective analysis can serve as an important corrective mechanism to the flaws of ex ante analyses. According to the report, the result of systematic retrospective review of regulations

should be a greatly improved understanding of the accuracy of prospective analyses, as well as corrections to rules as a result of ex post evaluations…. [I]mportantly, rules should be written and designed, in advance, so as to facilitate retrospective analysis of their effects.

While each economically significant rule proposed by the DOE this year mentions EO 13563, none include a plan for retrospective review of its standards. The rules in question are all energy efficiency standards, and each has the potential to incur billions of dollars of costs and benefits. Because of the magnitude of these rules and the frequency with which the DOE updates the stringency of its energy efficiency standards, the DOE should write plans for retrospective review into the text of its rules, to facilitate transparency, public accountability, and measurement of the success of its rules.

Review of previous standards / The DOE should also review the efficacy of its existing energy efficiency standards before making a determination that further standards are necessary. This is particularly important because the DOE often promulgates updates to its standards before enough time has elapsed to adequately measure the effects of its previous rules.

The DOE tends to conduct detailed ex ante analyses of the costs and energy savings associated with its proposed rules, but these (necessarily) are heavily dependent on assumptions about future prices of energy and other goods, opportunity costs, and producer and consumer preferences and behavior. Retrospective review that compares predicted outcomes with actual outcomes is essential to test those assumptions and calibrate the DOE’s models. This should be done before the DOE proposes new standards based on uncertain parameters.

The DOE should write plans for retrospective review into the text of its rules, to facilitate transparency and public accountability, and measure success.

For example, pursuant to the Energy Policy and Conservation Act (EPCA), the DOE regularly promulgates energy efficiency standards for residential and commercial appliances. The standards, which apply to microwave ovens, dishwashers, clothes dryers, air conditioners, and other home and commercial appliances that consume energy, affect a broad swath of the American public, businesses, and consumers alike. EPCA also requires the DOE to determine at intervals whether updates to its existing energy efficiency standards are “technically feasible and economically justified.” However, on more than one occasion the DOE has determined that such updates are necessary very shortly after implementing its previous standards, without allowing time for a retrospective review of the standards’ effectiveness. This does not allow the DOE to learn from implementation of past standards before implementing new rules.

Measuring anticompetitive effects /​Pursuant to EPCA, the DOE is required to consider “the impact of any lessening of competition, as determined in writing by the Attorney General, that is likely to result from the imposition of the standard” before finalizing a new energy efficiency rule. This evaluation is conducted by the Antitrust Division within the Department of Justice (DOJ). While this prospective evaluation is finalized before the rule goes into effect, it is also important to measure anticompetitive effects after a standard is implemented to determine whether the standard is economically justified, as required by statute.

As part of reviewing its energy efficiency standards, the DOE should undertake to evaluate the effects of its standards on competition. The DOE should consider applying the HHI, which the DOJ uses to evaluate the anticompetitive effects of mergers, to measure concentration in regulated industries pre- and post-enforcement of the DOE’s standards. The DOE should prioritize measurement of concentration within industries affected by standards that the DOJ has determined would have anticompetitive effects.

As it plans to retrospectively review each of its economically significant efficiency regulations, the DOE should commit to measuring any anticompetitive effects and to examining changes in the HHI upon implementation of its standards. Understanding the regulations’ effects on market structure will be important to understanding whether the rules achieve their stated objectives and identifying the benefits and costs associated with implementation. This should inform the public about any unintended anticompetitive effects of the DOE’s energy efficiency standards and improve the DOE’s analysis of future standards.

Conclusion / By seeking input from the public on its retrospective review efforts, the DOE is taking a step in the right direction. Effectively implemented, retrospective review should improve regulatory outcomes and the DOE’s ex ante analyses alike. Going forward, the DOE should incorporate plans for retrospective review into its major rules to facilitate transparency, public accountability, and measurement of the success of its rules.

Additionally, the DOE should review the efficacy of its existing energy efficiency standards before making a determination that further standards are necessary. After conducting the review, the DOE should incorporate any lessons learned or unintended consequences into its future standards, both to improve ex ante analysis and rulemaking outcomes. Finally, these retrospective reviews should include application of the HHI to measure any potentially anticompetitive effects, especially for energy efficiency standards that the DOJ has determined would have anticompetitive effects on the regulated industries.