CHAPTER 12. PRELIMINARY MANUFACTURER IMPACT ANALYSIS 

TABLE OF CONTENTS 

12.1 INTRODUCTION .........................................................................................................12-1
 

12.2 METHODOLOGY ........................................................................................................12-1
 

12.2.1 Phase I: Industry Profile ................................................................................... 12-2
 

12.2.2 Phase II: Industry Cash-Flow Analysis and Interview Guide .......................... 12-2
 

12.2.2.1 Industry Cash-Flow Analysis ......................................................... 12-2
 

12.2.2.2 Interview Guide.............................................................................. 12-2
 

12.2.3 Phase III: Subgroup Analysis ........................................................................... 12-2
 

12.2.3.1 Manufacturer Interviews ................................................................ 12-3
 

12.2.3.2 Revised Industry Cash-Flow Analysis ........................................... 12-3
 

12.2.3.3 Manufacturer Subgroup Analysis................................................... 12-3
 

12.2.3.4 Competitive Impact Assessment .................................................... 12-3
 

12.2.3.5 Manufacturing Capacity Impact..................................................... 12-4
 

12.2.3.6 Employment Impact ....................................................................... 12-4
 

12.2.3.7 Cumulative Regulatory Burden...................................................... 12-4
 

12.3 PRELIMINARY MANUFACTURER IMPACT ANALYSIS RESULTS...................12-4
 

12.3.1 Industry Overview............................................................................................ 12-4
 

12.3.1.1 Industry Cost Structure................................................................... 12-5
 

12.3.1.2 Inventory Levels ............................................................................. 12-6
 

12.3.2 Interview Topics and Preliminary Findings ..................................................... 12-7
 

12.3.2.1 Market Shares and Industry Consolidation .................................... 12-7
 

12.3.2.2 Production and Product Mix ........................................................... 12-8
 

12.3.2.3 Cumulative Regulatory Burden...................................................... 12-9
 

12.3.3 Overall Key Issues.......................................................................................... 12-10
 

12.3.3.1 Customer Impact .......................................................................... 12-10
 

12.3.3.2 Product Repairs versus Product Replacement.............................. 12-10
 

12.3.3.3 Shipments ..................................................................................... 12-10
 

12.3.3.4 Impact on Profitability and Outlook ............................................. 12-11
 

12.3.3.5 Impact on Small Manufacturers ................................................... 12-11
 

12.3.3.6 Impact on Competitiveness of Manufacturers.............................. 12-11
 

LIST OF TABLES 

Table 12.3.1 Walk-in Cooler and Freezer Industry Employment and Earnings...................12-5
 

Table 12.3.2 Walk-in Cooler and Freezer Industry Material and Payroll Costs...................12-6
 

Table 12.3.3 Walk-in Cooler and Freezer Industry End-of-Year Inventory.........................12-6
 

Table 12.3.4 Full Production Capacity Utilization Rates .....................................................12-7
 

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CHAPTER 12 PRELIMINARY MANUFACTURER IMPACT ANALYSIS 

12.1 INTRODUCTION 

The purpose of the manufacturer impact analysis (MIA) is to identify and quantify the 

likely impacts of energy conservation standards on manufacturers. In the Notice of Proposed 

Rulemaking (NOPR) stage of the analysis, DOE considers a wide range of quantitative and 

qualitative industry impacts that might occur due to an energy conservation standard. For 

example, a particular standard level could require changes in manufacturing practices, 

equipment, raw materials, etc. DOE fully analyzes these impacts during the NOPR stage. 

DOE announced changes to the preliminary analysis MIA format through a report issued 

to Congress on January 31, 2006 (as required by section 141 of the Energy Policy Act of 2005 

(EPACT 2005), entitled “Energy Conservation Standards Activities.”1

 As a result, DOE collects, 

evaluates, and reports preliminary MIA information in the preliminary analysis (as opposed to 

waiting for the NOPR stage). Such preliminary information includes market data, market shares, 

industry consolidation, product mix, key issues, conversion costs, foreign competition, and 

cumulative regulatory burden information, if available. DOE solicits this information during the 

preliminary manufacturer interviews and reports the results in this chapter. 

To the extent appropriate for this rulemaking, DOE applies the methodology described 

below to evaluate energy conservation standards for walk in coolers and freezers. 

12.2 METHODOLOGY 

DOE conducts the MIA in three phases. In Phase I, DOE creates an industry profile to 

characterize the industry and conducts a preliminary MIA to identify important issues that 

require consideration. Section 12.3.1 of this chapter presents initial findings of the Phase I 

analysis. In Phase II, DOE prepares an industry cash flow model and a detailed interview 

questionnaire to guide subsequent discussions with manufacturers. In Phase III, DOE interviews 

manufacturers and assesses the impacts of energy conservation standards both quantitatively and 

qualitatively. DOE assesses industry and subgroup cash flow impacts and industry net present 

value (INPV) using the Government Regulatory Impact Model (GRIM). For additional details on 

the GRIM, see section 12.2.2.1. DOE also assesses impacts on competition, manufacturing 

capacity, employment, and regulatory burden based on manufacturer interviews and discussions. 

The NOPR and technical support document (TSD) present results of the Phase II and III 

analyses. 

1

 This report is available on the DOE website at 

www.eere.energy.gov/buildings/appliance_standards/2006_schedule_setting.html. 

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12.2.1 Phase I: Industry Profile 

In Phase I of the MIA, DOE collects pertinent qualitative and quantitative financial and 

market information. This includes data on wages, employment, industry costs, and capacity 

utilization rates for manufacturers of walk in coolers and freezers. Sources of information 

include reports published by industry groups, trade journals, the U.S. Census Bureau, and 

Securities Exchange Commission (SEC) 10-K filings. In addition, DOE relies on information 

from its market and technology assessment, engineering analysis, life-cycle cost analysis, and 

consumer price analysis to characterize the walk in cooler and freezer manufacturing industry. 

12.2.2 Phase II: Industry Cash-Flow Analysis and Interview Guide 

In Phase II, DOE performs a preliminary industry cash-flow analysis and prepares written 

guidelines for interviewing manufacturers. 

12.2.2.1 Industry Cash-Flow Analysis 

The GRIM is a financial model that analyzes the impacts of energy conservation 

standards. Energy conservation standards may affect investment, production costs, and revenue 

through changes in prices and, possibly, shipments. The GRIM uses several factors to determine 

a series of annual cash flows for the year that energy conservation standards become effective 

and for several years after implementation. These factors include annual expected revenues, costs 

of sales, selling and general administration costs, taxes, and capital expenditures. Inputs to the 

GRIM include financial information, manufacturing costs, shipment forecasts, and price 

forecasts developed in other analyses. The financial information is developed from publicly 

available data and confidentially submitted manufacturer information. DOE compares the results 

of the GRIM against baseline projections in which no energy conservation standards are in place. 

The financial impact of energy conservation standards is the difference between the two sets of 

discounted annual cash flows. 

12.2.2.2 Interview Guide 

DOE conducts interviews with manufacturers to gather information on the effects of 

energy conservation standards on revenues, costs, direct employment, capital assets, and industry 

competitiveness. Before the interviews, which occur in Phase III, DOE distributes an interview 

guide to help identify the impacts of energy conservation standards on individual manufacturers 

or subgroups of manufacturers. Interview guide topics include: production costs; shipment 

projections; market share; product mix; conversion costs; markups and profitability; competition; 

manufacturing capacity; cumulative regulatory burden; and other relevant topics. 

12.2.3 Phase III: Subgroup Analysis 

Phase III activities take place after publication of the preliminary analysis. These 

activities include manufacturer interviews; revision of the industry cash-flow analysis; a 

manufacturer subgroup analysis; an assessment of the impacts on industry competition, 

manufacturing capacity, direct employment, cumulative regulatory burden, as well as other 

qualitative impacts. 

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12.2.3.1 Manufacturer Interviews 

DOE conducts detailed interviews with manufacturers to gain insight into the potential 

impacts of energy conservation standards on sales, direct employment, capital assets, and 

industry competitiveness. The interview process is critical to the MIA because it provides an 

opportunity for manufacturers to privately express their views on important issues. Interviews 

are scheduled well in advance to provide every opportunity for manufacturers to be available for 

comment. Although a written response to the questionnaire is acceptable, DOE prefers 

interactive interviews, which help clarify responses and provide the opportunity to identify 

additional issues not specifically addressed in the interview questionnaire. A non-disclosure 

agreement allows confidential or sensitive information to be considered in DOE’s decisionmaking process. Confidential information will not be made available in the public record. At 

most, sensitive or confidential information may be aggregated and presented in industry-wide 

representations. 

DOE supplements the information gathered in Phase I and the cash flow analysis 

performed in Phase II with information gathered during manufacturer interviews. 

12.2.3.2 Revised Industry Cash-Flow Analysis 

As discussed, DOE requests information about profitability impacts, necessary plant 

changes, and other manufacturing impacts during the interview process. DOE revises its industry 

cash flow model based on the feedback it receives in comments and during interviews. 

12.2.3.3 Manufacturer Subgroup Analysis 

Using average cost assumptions to develop an industry cash flow estimate will not 

adequately assess differential impacts among manufacturer subgroups. Smaller manufacturers, 

niche players, and manufacturers exhibiting a cost structure that differs largely from the industry 

average could be more negatively affected. Ideally, DOE would consider the impact on every 

firm individually; however, it typically uses the results of the industry characterization to group 

manufacturers with similar characteristics. During the interviews, DOE discusses the potential 

subgroups that have been identified for the analysis. DOE asks manufacturers and other 

interested parties to suggest what subgroups or characteristics are most appropriate for the 

analysis. 

12.2.3.4 Competitive Impact Assessment 

Section 342 (6)(B)(i)(V) of the Energy Policy Act of 1992 (EPCA) directs DOE to 

consider any lessening of competition likely to result from the imposition of standards. EPCA 

further directs the U.S. Attorney General to determine the impacts, if any, of any decrease in 

competition. DOE attempts to gather and report firm-specific financial information and impacts 

wherever possible. DOE bases the competitive impact assessment on manufacturer cost data and 

other information collected from interviews. When assessing competitive impacts, DOE’s 

interviews generally focus on assessing asymmetrical cost increases, the potential increase in 

business risks from an increased proportion of fixed costs, and potential barriers to market entry 

(e.g., proprietary technologies). The competitive analysis will also focus on assessing any 

differential impacts to smaller manufacturers. 

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12.2.3.5 Manufacturing Capacity Impact 

One of the significant outcomes of energy conservation standards can be the 

obsolescence of existing manufacturing assets, including tooling and other investments. The 

manufacturer interview guide presents a series of questions to help identify impacts on 

manufacturing capacity, specifically capacity utilization and plant location decisions in the 

United States with and without energy conservation standards. The interview guide also 

addresses the ability of manufacturers to upgrade or remodel existing facilities to accommodate 

the new requirements; the nature and value of stranded assets, if any; and estimates for any onetime restructuring or other charges, where applicable. 

12.2.3.6 Employment Impact 

The impact of energy conservation standards on employment is an important 

consideration in the rulemaking process. To assess how domestic employment patterns might be 

affected, the interview process explores current employment trends in the walk in coolers and 

freezers industry and solicits manufacturer views on changes in employment patterns that may 

result from increased standard levels. The employment impacts section of the interview guide 

focuses on current employment levels at production facilities; expected future employment levels 

with and without an energy conservation standard; differences in workforce skills; and employee 

retraining. 

12.2.3.7 Cumulative Regulatory Burden 

DOE seeks to mitigate the overlapping effects on manufacturers due to energy 

conservation standards and other regulatory actions. DOE analyzes and considers the impact on 

manufacturers of multiple, product-specific regulatory actions. 

12.3 PRELIMINARY MANUFACTURER IMPACT ANALYSIS RESULTS 

During the preliminary activities phase, DOE conducted a preliminary evaluation of the 

impact of potential energy conservation standards on the walk-in cooler and freezer industry. 

The primary sources of information for this analysis the U.S. Census, industry reports, 

and interviews with manufacturers of walk-in equipment, conducted during the summer of 2009. 

To maintain confidentiality, DOE only reports aggregated information here. DOE does not 

disclose company-specific information, nor does it identify the individual manufacturers that 

disclosed information. 

12.3.1 Industry Overview 

The following section summarizes publicly available industry data. 

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12.3.1.1 Industry Cost Structure 

DOE is unaware of any publicly available industry-wide cost data specific to only 

manufacturers of walk in coolers and walk in freezers. DOE examined the North American 

Industry Classification System (NAICS) codes for small business sizes and determined that 

walk-in cooler and freezer manufacturing is classified as a subset under NAICS code 333415 

(Air-Conditioning and Warm Air Heating Equipment and Commercial and Industrial 

Refrigeration Equipment Manufacturing). Therefore, DOE presents the data below as a broader 

industry proxy for the walk in cooler and freezer industry, which, in combination with 

information gained in interviews, inform DOE’s analysis of the industry cost structure. DOE 

recognizes that not all manufacturers of walk-in cooler and freezer equipment may classify 

themselves under NAICS code 333415, particularly those that only manufacture WICF 

envelopes. However, DOE was unable to find another NAICS code that corresponded closely to 

envelope manufacturing. DOE will conduct additional research to determine if a more 

appropriate code can be used. If DOE determines that a different NAICS industry code should be 

used to represent WICF envelope manufacturers, DOE will report the following data for that 

industry separately. 

DOE obtained the below data from U.S. Census Bureau, Annual Survey of 

Manufacturers, Statistics for Industry Groups and Industries from 2002-2007. 

Table 12.3.1 presents the walk-in cooler and freezer employment levels and earnings 

from 2002 to 2007. The statistics illustrate approximately an 8-percent decrease in production 

workers and overall number of employees from 2002 to 2007. 

Table 12.3.1 Employment and Earnings for the Air-Conditioning and Warm Air Heating 

Equipment and Commercial and Industrial Refrigeration Equipment Manufacturing 

Industry 

Year Production Workers All Employees Annual Payroll 

($000s) 

2002 80,400 108,252 3,815,129 

2003 77,471 104,646 3,775,799 

2004 73,559 99,669 3,707,969 

2005 76,011 102,354 3,942,808 

2006 74,909 98,097 4,019,813 

2007 73,993 100,284 3,975,785 

Source: U.S. Census Bureau. Annual Survey of Manufacturers, 2002-2007 

Table 12.3.2 presents the costs of materials and industry payroll as a percentage of 

shipment value from 2002 to 2007. The cost of materials as a percentage of shipment value has 

steadily increased from 2002 to 2007. The cost of payroll for production workers and the cost of 

total payroll have declined by 17.3 percent and 16.1 percent, respectively. 

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Table 12.3.2 Air-Conditioning and Warm Air Heating Equipment and Commercial and 

Industrial Refrigeration Equipment Manufacturing Industry Material and Payroll Costs 

Year Cost of Materials 

(percent of shipment value) 

Cost of Payroll 

for Production Workers 

(percent of shipment value) 

Cost of Total Payroll 

(percent of shipment value) 

2002 49.36 9.83 15.85 

2003 50.59 9.53 15.39 

2004 51.81 8.99 14.57 

2005 53.78 8.52 13.78 

2006 53.17 8.87 13.80 

2007 55.52 8.12 13.29 

Source: U.S. Census Bureau. Annual Survey of Manufacturers, 2002-2007 

12.3.1.2 Inventory Levels 

Table 12.3.3 shows the year-end inventory for the Air-Conditioning and Warm Air 

Heating Equipment and Commercial and Industrial Refrigeration Equipment Manufacturing 

industry obtained from the U.S. Census Bureau, Annual Survey of Manufacturers, Statistics for 

Industry Groups and Industries from 2002 to 2007. Year-end inventory refers to the amount of 

inventory a manufacturer has on hand at year end, which includes work-in-progress and finished 

goods. Again, DOE presents these data as a broader measure of the walk in coolers and freezers 

industry. The industry’s end-of-year inventory from 2002 to 2007 increased when expressed 

both in dollars and as a percentage of shipment value. 

Table 12.3.3 End-of-Year Inventory for the Air-Conditioning and Warm Air Heating 

Equipment and Commercial and Industrial Refrigeration Equipment Manufacturing 

Industry 

Year End-of-Year Inventory 

($000s) 

End-of-Year Inventory 

(percent of shipment value) 

2002 2,302,012 9.57 

2003 2,376,827 9.69 

2004 2,473,932 9.72 

2005 2,687,441 9.39 

2006 2,887,139 9.91 

2007 3,011,358 10.07 

Source: U.S. Census Bureau. Annual Survey of Manufacturers, 2002-2007 

DOE obtained full production capacity utilization rates from the U.S. Census Bureau, 

“Current Industrial Reports,” Survey of Plant Capacity from 2002 to 2006. Table 12.3.4 presents 

production capacity utilization rates for NAICS code 333415. Full production capacity is defined 

as the maximum level of production an establishment could attain under normal operating 

conditions. In the Survey of Plant Capacity report, the full production utilization rate is a ratio of 

the actual level of operations to the full production level. 

12-6 
 

Table 12.3.4 Air-Conditioning and Warm Air Heating Equipment and Commercial and 

Industrial Refrigeration Equipment Manufacturing Industry Full Production Capacity 

Utilization Rates 

Year Air Conditioning and Warm Air Heating Equipment and Commercial and 

Industrial Refrigeration Equipment Manufacturing (%) 

2002 60 

2003 62 

2004 60 

2005 66 

2006 63 

Source: U.S. Census Bureau. 2007 Current Industrial Reports: Table 1a - Full Production 

Capacity Utilization Rates by Industry: Fourth Quarters 2002 through 2006. November 2007 

12.3.2 Interview Topics and Preliminary Findings 

The following section summarizes information gathered during interviews held during 

the summer of 2009 for the preliminary MIA. 

12.3.2.1 Market Shares and Industry Consolidation 

Energy conservation standards can alter the competitive dynamics of the marketplace, 

prompting companies to enter the market, exit the market, or merge with other companies. The 

preliminary MIA interview questions asked manufacturers to share their perspectives on industry 

consolidation both in the absence of energy conservation standards and assuming standards at 

various efficiency levels. The interview questions focused on gathering information that 

assessed: 

 current and anticipated market share in the event of standards; 

 disproportionate cost increases to some manufacturers; 

 likelihood of industry consolidation; 

 increased proportion of fixed costs potentially increasing business risks; and 

 potential barriers to market entry (e.g., proprietary technologies). 

The need to assess anti-competitive effects of proposed energy conservation standards 

derives from the need to protect consumer interests. During the interviews, DOE also solicited 

information to determine whether energy conservation standards could result in disproportionate 

economic or performance penalties for particular consumer or user subgroups. Manufacturers 

were also asked if energy conservation standards could result in products that would be more or 

less desirable to consumers due to changes in product functionality, utility, or other features. 

Market Shares. DOE inquired about current market shares of manufacturers in the 

walk-in cooler and freezer industry and how those shares might change after an energy 

conservation standard. One manufacturer said that a new standard could help them, but that they 

expect their market share to go down before it goes up, in part because the company could lose a 

price advantage on materials. Another manufacturer said that they do expect their market share 

to change once standards become effective, regardless of where the levels are set, but it could not 

determine whether it would increase or decrease. Another manufacturer said the effect of any 

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standard on its market share would depend on the level of enforcement. This company said that 

if the standards are not enforced, then it would impact the market share of those players not 

necessarily complying with standards. One manufacturer said that they would not expect their 

market share to change once standards become effective. This firm hopes that the standards will 

be fair and that people will comply, although they also said that there is no mechanism for 

compliance. This firm gave the example of the California regulations and stated that there are no 

penalties for non-compliance; so many competitors do not adhere to the standard. 

Industry Consolidation. The walk-in cooler and freezer industry is relatively 

fragmented but has seen some consolidation in recent years. Manufacturers were generally 

mixed on how standards might affect consolidation. Most manufacturers expect consolidation to 

continue regardless of any standards, and several manufacturers said they would expect 

consolidation to increase as a result of standards. One firm said that some companies would go 

out of business or be acquired in the face of standards, while another thought standards would 

spur additional market entrants as well as vertical integration, expecting suppliers and customers 

to potentially enter the market. A common theme from manufacturers was that enforcement 

would play a major role in how standards might alter the market. In general, manufacturers 

stated that the greater the level of enforcement, the greater the level of consolidation that would 

ensue. 

12.3.2.2 Production and Product Mix 

DOE requested manufacturers’ feedback on what they perceived to be the possible 

impact of energy conservation standards on profitability. For instance, the capital and product 

conversion outlays may be required to upgrade or redesign products before they have reached the 

end of their useful life, which could result in reduced cash flow and stranded investments. Higher 

energy conservation standards could also result in higher per-unit costs that could cause 

consumers to shift to less expensive products, if available. 

Product Mix. Currently, a significant percentage of the overall market’s production is 

customized to the customer’s needs. Several manufacturers expressed concern that a stringent 

standard may affect their ability to customize their products. One manufacturer pointed out that 

approximately 70 percent of walk-in cooler and freezer equipment is custom-made, and that an 

overly stringent standard could hurt the custom products market. Other manufacturers stated that 

70-80 percent of their sales are custom equipment. One manufacturer asserted that a reasonable 

energy conservation standard for walk-in coolers and freezers would allow for cost-effective, 

customized products to be developed. One firm also said that water-cooled units could be the 

only choice for tall buildings under a new standard, though not for water-restricted areas, 

because, water-cooled units are sometimes more efficient in certain indoor environments, and 

end-users in tall buildings could not site the condensing unit outdoors. 

Product Utility. Some manufacturers expressed concerns that energy conservation 

standards might require changes in product functionality, utility, and other features that would 

make products less desirable to consumers. Some manufacturers were concerned that larger sized 

walk-in coolers and freezers could become a problem under a more stringent energy 

conservation standard. For example, if the insulation standard in the industry required panels to 

be thicker, this would be less desirable to customers because the larger walk-in units would leave 

12-8 
 

the customer with less available refrigerated space. This firm said that more stringent standards 

could reduce flexibility to cater to specific applications, which would reduce the functionality of 

the equipment. For example, this firm said that you could have an efficient product at a specific 

evaporator temperature, but need to operate at different one for the standard. This manufacturer 

also said that without enforcement of the new standard, the service of walk-in cooler and freezer 

equipment would be more expensive with the complex systems. They said that there could be a 

shift from service professionals that change parts to diagnosticians, as seen in cars, and this 

would substantially increase costs. Manufacturers stated that new unproven technologies 

required by any new standards could present challenges to product reliability. 

12.3.2.3 Cumulative Regulatory Burden 

While any one regulation may not impose a significant burden on manufacturers, the 

combined effects of several impending regulations may have serious consequences for some 

manufacturers, groups of manufacturers, or an entire industry. Assessing the impact of a single 

regulation may overlook this cumulative regulatory burden. For the cumulative regulatory 

burden analysis, DOE describes other significant equipment-specific regulations that could affect 

walk-in cooler and freezer manufacturers or their parent companies. 

Based on its own research and discussions with manufacturers, DOE identified several 

regulations relevant to walk-in coolers and freezers, including: 

 Refrigerant switch 

 General DOE regulations 

 Building codes and other 

Refrigerant. Due to the phase-out of chlorofluorocarbons (CFCs) and 

hydrochlorofluorocarbons (HCFCs), the walk-in cooler and freezer industry had to transition to 

non-ozone-depleting refrigerants. As a result, the industry has transitioned to hydrofluorocarbonbased (HFC-based) refrigerants in its walk-in cooler and freezer equipment. 

Testing Costs. One manufacturer expressed a concern with the potential costs to meet 

testing requirements or to do outside testing. This firm said that the costs would be about $5,000-

$10,000 per product to test meet fire and safety criteria of Underwriters Laboratories. Another 

manufacturer said that their testing costs would be 1.5 to 2.0 percent of sales for all of the 

regulations that they comply with. According to one manufacturer, these overall regulatory 

burden issues add about 10 to 20 percent to the cost of doing business. 

Building Codes and Other Regulations. Several manufacturers are concerned with 

requirements for the National Sanitation Foundation’s (NSF) certification requirements, which 

carry significant compliance costs. International, state, and local building codes present 

additional costs, including permit and inspection fees. Manufacturers also referenced disposal 

requirements they must comply with. One major problem, according to several firms, is the 

potential for conflicting regulations where a company cannot meet both, such as fire codes and 

the Montreal protocol for blowing agents. 

12-9 
 

12.3.3 Overall Key Issues 

Perhaps the most important aspect of the preliminary MIA is the opportunity it creates for 

DOE to identify key manufacturer issues early in the development of energy conservation 

standards. During preliminary interviews, manufacturers identified several major issues that are 

detailed in the following sections. 

12.3.3.1 Customer Impact 

One manufacturer said that a new standard would have a negative impact on customers, 

down to the variety of foods and services that they could offer. This firm argued that a more 

stringent standard could make it more difficult for customers to buy fresh refrigerated foods. 

One manufacturer said that unsophisticated customers may be hurt by the new standard. 

Several manufacturers said that small users/subgroups would be disproportionately affected, as 

these groups are more concerned about upfront costs than life cycle cost savings. They stated that 

convenience stores would be more affected than restaurants under the standard, because 75 

percent of the equipment used in convenience stores is custom, which could potentially be 

restricted at certain standard levels. One manufacturer argued it would have to pass the costs 

along to customers, which would reduce new business starts and increase failures. 

12.3.3.2 Product Repairs versus Product Replacement 

Several manufacturers noted that an energy conservation standard could cause a trend to 

repair walk-in coolers and freezers rather than replace them. One manufacturer said that because 

prices would go up under the new standard, customers would prefer to repair their existing 

equipment upon failure rather than purchase new replacement equipment. Several manufacturers 

pointed out that customers may also opt to purchase several reach-in products rather than a single 

walk-in. Another manufacturer noted that currently customers are already repairing rather than 

replacing their units. 

12.3.3.3 Shipments 

Shipment projections can be a significant factor in determining the manufacturing 

impacts of energy conservation standards. The interviews provide an opportunity for 

manufacturers to share information that can help DOE quantify the magnitude of any changes in 

shipments resulting from energy conservation standards. 

Several manufacturers expect shipments of walk-in coolers and freezers would decrease 

with standards because unit prices would increase. One manufacturer stated that a high 

incremental cost increase due to standards would drive lower total shipments, as consumers opt 

to repair rather than replace units, as discussed above. The manufacturer further stated that 

higher first cost would deter new businesses and restaurants from starting. The manufacturer 

estimated that a 5 percent cost increase would result in a 5 percent decrease in industry 

shipments; a 10 percent cost increase would result in a 7.5 percent shipment decrease; and a 25 

percent cost increase would result in a 15 percent shipment decrease. Another firm estimated 

that a 5 percent price increase would lead to a 5 percent decline in shipments and a 10 percent 

12-10 
 

price increase would drive down sales by 20 percent due to business closures and substitutions 

by consumers. 

On the other hand, a different manufacturer stated that standards would not change 

industry shipments unless the price increase was significant. The firm projected, for example, 

that a 25 percent increase would lower shipments by 5-10 percent. However, a 50 percent 

increase would drive shipments down by 10 to 15 percent and likely prohibit some new 

restaurants from opening. 

12.3.3.4 Impact on Profitability and Outlook 

DOE interviewed manufacturers about any potential change in their outlook that could 

arise from energy conservation standards. 

One manufacturer said that a new standard, if reasonable, could help potentially help 

their business competitively because they are confident of their ability to comply. However, 

most firms expressed concern that stringent standards could result in higher production costs, 

lower shipments, and lower margins. In terms of conversion costs, several manufacturers 

expressed concerns that the new standard may force them to switch from board stock foam to 

polyurethane foam, which would require significant investments in the machinery necessary to 

produce the polyurethane foam. One manufacturer said that there are fewer suppliers of the type 

of board stock foam that complies with EISA for a four-inch panel. 

One firm explained that the walk-in cooler and freezer industry is not a high margin 

industry, and small increases in costs can dramatically affect profitability. Shipping costs, for 

instance, which are a significant portion of the cost structure and do not benefit from economies 

of scale, could increase with larger, heavier units. A manufacturer argued that it is possible that 

shipments could decrease under standards but still require more delivery trucks because of the 

larger units. 

12.3.3.5 Impact on Small Manufacturers 

Several manufacturers said that small businesses would be at a competitive disadvantage 

under the standard because the capital investments required would have to be spread over fewer 

units. Because the smaller companies produce fewer units, it is more difficult for them to make a 

profit at the wholesale price. Another manufacturer said that a strict standard may also affect 

OEMs that make a portion of the product themselves, and these firms may not have the ability to 

meet the standard. A different manufacturer said that their outlook would only change if the 

standards were enforced. 

12.3.3.6 Impact on Competitiveness of Manufacturers 

One manufacturer said that whether the new standard would have an effect on the 

competitiveness of manufacturers in the industry depends on enforcement. This firm said that the 

competitive landscape would remain about the same unless rules were enforced. Assuming 

aggressive enforcement, many smaller players who may not be in compliance currently would go 

out of business. Another manufacturer stated that a standard’s effect on industry competition 

depends on how stringent the standard is. If the standard is reasonable, this firm said that there 

12-11 
would not be a drastic effect. Some manufacturers stated that strong enforcement would benefit 

their competitive position. 

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