CHAPTER 12. PRELIMINARY MANUFACTURER IMPACT ANALYSIS

TABLE OF CONTENTS

**12.1 INTRODUCTION** 

**......................................................................................... 12­1** 

**12.2 METHODOLOGY** 

**........................................................................................ 12­1** 

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

**12.2.2 Phase**  **II: Industry**  **Cash­Flow Analysis**  **and Interview**  **Guide............... 12­2** 

**12.2.3 Phase**  **III: Sub­Group**  **Analysis**

**............................................................. 12­3** 

**12.3 PRELIMINARY**  **MANUFACTURER IMPACT**  **OVERVIEW.................... 12­5** 

**12.3.1 Overview**  **of Industry**  **Data..................................................................... 12­5** 

**12.3.2 Preliminary Manufacturing Interview Overview................................... 12­7** 

**12.4 GENERAL**  **SERVICE FLUORESCENT**  **LAMPS........................................ 12­9** 

**12.4.1 Product**  **Mix**

**........................................................................................... 12­9** 

**12.4.2 Conversion**  **Costs**

**................................................................................. 12­10** 

**12.4.3 Materials**  **Availability**

**.......................................................................... 12­10** 

**12.5 INCANDESCENT**  **REFLECTOR LAMPS.................................................**  **12­10**

**12.5.1 Product**  **Mix**

**......................................................................................... 12­10** 

**12.5.2 Conversion**  **Costs**

**................................................................................. 12­11** 

**12.6 SUMMARY**  **OF MAJOR**  **ISSUES FROM**  **PRELIMINARY MIA** 

**............ 12­11** 

**12.6.1 Retooling**  **Equipment to**  **Produce Standards­Compliant**  **Lamps**

**.......... 12­11** 

**12.6.2 Availability of Materials to Produce Standards­Compliant Lamps..... 12­11** 

**12.6.3 Maintaining**  **Product Availability**  **and Features** 

**................................... 12­11** 

**REFERENCES**

**........................................................................................................ 12­13** 

LISTOF TABLES

**Table 12.3.1**  **Electric Lamp**  **Industry Employment**  **and Earnings.................................**  **12­6**

**Table 12.3.2**  **Electric Lamp**  **Industry Census**  **Data**

**................................................. 12­6** 

**Table 12.3.3**  **Electric Lamp**  **Industry Census**  **Data**

**................................................ 12­6** 

**Table 12.3.4**  **Full Production**  **Capacity Utilization**  **Rates**

**...................................... 12­7** 

**12­i**CHAPTER 12 PRELIMINARY MANUFACTURER IMPACT ANALYSIS

12.1 INTRODUCTION

**The purpose**  **of the**  **manufacturer impact**  **analysis (MIA)**  **is to**  **identify the**  **potential**

**impacts of**  **energy conservation**  **standards on**  **manufacturers. The**  **Process Rule**  **provides**

**guidance for**  **conducting this**  **analysis with**  **input from**  **manufacturers and**  **other interested** 

**parties. The**  **U.S. Department**  **of Energy**  **(DOE) will**  **apply this**  **methodology to**  **its**

**evaluation of**  **standards to**  **the extent**  **it is**  **appropriate for**  **the development**  **of energy** 

**conservation standards**  **for the**  **lamps covered**  **under this**  **rulemaking. The**  **Process Rule** 

**gives guidelines**  **for the**  **consideration of**  **financial impacts**  **and a**  **wide range**  **of**

**quantitative and**  **qualitative industry**  **impacts that**  **might occur**  **after adoption**  **of a** 

**standard. For**  **example, a**  **particular standard**  **level could**  **require changes**  **in**

**manufacturing practices**  **for general**  **service fluorescent**  **lamps (GSFL)**  **and incandescent** 

**reflector lamps**  **(IRL). DOE**  **will identify**  **and analyze**  **these impacts**  **through interviews** 

**with manufacturers**  **and other**  **stakeholders during**  **the NOPR**  **stage of**  **its analysis.** 

**DOE announced**  **changes to**  **the MIA**  **format through**  **a report**  **issued to**  **Congress**

**on January**  **31, 2006**  **(as required**  **by section**  **141 of**  **EPACT 2005),**  **entitled “Energy** 

**Conservation Standards**  **Activities.” a**  **Previously, DOE**  **did not**  **report any**  **MIA results** 

**during the**  **ANOPR phase;**  **however, under**  **this new**  **format, DOE**  **has collected,** 

**evaluated, and**  **reported preliminary**  **information and**  **data in**  **the ANOPR.**  **Such**

**preliminary information**  **includes efficacy**  **and market**  **data, key**  **issues, production**  **mixes,**

**conversion costs,**  **foreign competition,**  **market shares,**  **industry consolidation,**  **and**

**cumulative regulatory**  **information. DOE**  **solicited this**  **information during**  **the ANOPR** 

**preliminary manufacturer**  **interviews and**  **reports the**  **results in**  **this chapter.**  **Appendix**

**12A provides**  **a copy**  **of the**  **interview guide**  **used for**  **the preliminary**  **manufacturer**

**interviews.**

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.**  **Sections 12.3**  **­ 12.6 of**  **this chapter**  **present initial** 

**findings of**  **the Phase**  **I analysis.**  **In Phase**  **II, DOE**  **prepares an**  **industry cash**  **flow model** 

**and an**  **interview questionnaire**  **to guide**  **subsequent discussions.**  **In Phase**  **III,**

**manufacturers are**  **interviewed, and**  **the impacts**  **of standards**  **are assessed**  **both**

**quantitatively and**  **qualitatively. DOE**  **assesses industry**  **and sub­group**  **cash flow**  **and**

**NPV using**  **the Government**  **Regulatory Impact**  **Model (GRIM).**  **Then impacts**  **on**

**competition, manufacturing**  **capacity, employment,**  **and regulatory**  **burden are**  **assessed**

**a This**  **report is**  **available on**  **the DOE**  **website at** 

**http://www.eere.energy.gov/buildings/appliance_standards/2006_schedule_setting.html.**

**12­1 based**  **on manufacturer**  **interviews and**  **discussions. The**  **NOPR TSD**  **presents results**  **of**

**the Phase**  **II and**  **III analyses.** 

12.2.1 Phase I: Industry Profile

**In Phase**  **I of**  **the manufacturer**  **impact analysis,**  **DOE collects**  **pertinent qualitative** 

**and quantitative**  **financial and**  **market information.**  **This includes**  **wages, employment,** 

**and industry**  **costs for**  **GSFL and**  **IRL. Sources**  **of information**  **include reports**  **published**

**by industry**  **groups, trade**  **journals, the**  **U.S. Census**  **Bureau, and**  **copies of**  **Securities**

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

**its market**  **and technology**  **assessment, engineering**  **analysis, life­cycle**  **cost analysis,**  **and**

**analysis of**  **consumer prices**  **to characterize**  **the GSFL**  **and IRL**  **manufacturing industries.** 

12.2.2 Phase II: Industry Cash­Flow Analysis and Interview Guide

**In Phase**  **II, DOE**  **will perform**  **a preliminary**  **industry cash­flow**  **analysis and** 

**prepare written**  **guidelines for**  **interviewing manufacturers.** 

12.2.2.1 Industry Cash­Flow Analysis

**DOE uses**  **the GRIM**  **to analyze**  **the financial**  **impacts of**  **energy conservation** 

**standards on**  **the GSFL**  **and IRL**  **industries. Standards**  **may require**  **additional investment,** 

**raise production**  **costs, and**  **affect revenue**  **through higher**  **prices and**  **possibly lower**  **sales.**

**The GRIM**  **uses several**  **factors to**  **determine a**  **series of**  **annual cash**  **flows for**  **the year** 

**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**  **related to**  **depreciation, new**  **standards, and**  **maintenance.**

**Inputs to**  **the GRIM**  **include manufacturing**  **costs, shipments**  **forecasts, and**  **price forecasts** 

**developed in**  **other analyses.**  **Financial information,**  **another input,**  **will be**  **developed**

**based on**  **publicly available**  **data and**  **confidentially submitted**  **manufacturer information.** 

**DOE compares**  **the results**  **of the**  **GRIM against**  **baseline projections**  **where no**  **standards**

**are in**  **place. The**  **financial impact**  **of new**  **standards is**  **the difference**  **between the**  **two sets** 

**of discounted**  **annual cash**  **flows.**

12.2.2.2 Interview Guide

**DOE will**  **conduct interviews**  **with manufacturers**  **to gather**  **information on**  **the**

**effects of**  **standards on**  **revenues and**  **finances, direct**  **employment, capital**  **assets, and** 

**industry competitiveness.**  **These interviews**  **will take**  **place during**  **Phase III**  **of the**  **MIA.**

**Before the**  **interviews, DOE**  **will distribute**  **an interview**  **guide that**  **will help**  **identify the** 

**impacts of**  **standards on**  **individual manufacturers**  **or sub­groups**  **of manufacturers.**  **The**

**interview guide**  **will likely**  **cover current**  **organizational characteristics;**  **industry**

**infrastructure; manufacturer**  **cash­flow analysis;**  **and assessments**  **of the**  **impact on** 

**competition, employment,**  **and manufacturing**  **capacity.**

**12­2**12.2.3 Phase III: Sub­Group Analysis

**Phase III**  **activities will**  **occur after**  **publication of**  **the ANOPR.**  **These activities** 

**will include**  **manufacturer interviews;**  **revision of**  **the industry**  **cash­flow analysis;**  **a**

**manufacturer sub­group**  **cash­flow analysis;**  **and assessment**  **of the**  **impacts on** 

**competition, manufacturing**  **capacity, employment,**  **and the**  **cumulative regulatory**  **burden.**

12.2.3.1 Manufacturer Interviews

**DOE will**  **supplement the**  **information gathered**  **in Phase**  **I and**  **the cash­flow** 

**analysis performed**  **in Phase**  **II with**  **information gathered**  **during interviews**  **with**

**manufacturers during**  **Phase III.**  **The interview**  **process has**  **a key**  **role in**  **the manufacturer** 

**impact analyses,**  **since it**  **provides an**  **opportunity for**  **interested parties**  **to express**  **their**

**views privately**  **on important**  **issues, so**  **that confidential**  **or sensitive**  **information can**  **be**

**considered in**  **the rulemaking**  **decision.**

**DOE will**  **conduct detailed**  **interviews with**  **manufacturers to**  **gain insight**  **into the** 

**potential impacts**  **of standards**  **on sales,**  **direct employment,**  **capital assets,**  **and industry** 

**competitiveness. Both**  **qualitative and**  **quantitative information**  **are valuable.**  **Interviews**

**will be**  **scheduled well**  **in advance**  **to provide**  **every opportunity**  **for key**  **individuals to**  **be**

**available for**  **comment. Although**  **a written**  **response to**  **the questionnaire**  **will be** 

**acceptable, DOE**  **prefers an**  **interactive interview**  **process, which**  **helps clarify**  **responses**

**and provides**  **the opportunity**  **to identify**  **additional issues.** 

**Manufacturers who**  **participate in**  **the interviews**  **will be**  **asked to**  **identify all** 

**confidential information**  **provided during**  **and following**  **the interview.**  **DOE will**  **consider**

**all information**  **transmitted in**  **its decision­making**  **process. However,**  **confidential**

**information will**  **not be**  **made available**  **in the**  **public record.**  **Participants will**  **also be** 

**asked to**  **identify any**  **information they**  **wish to**  **be included**  **in the**  **public record**  **but do**  **not**

**want attributed**  **to them.** 

12.2.3.2 Revised Industry Cash­Flow Analysis

**In Phase**  **II of**  **the MIA,**  **DOE will**  **prepare a**  **preliminary GRIM.**  **During the** 

**interviews, DOE**  **will seek**  **comment and**  **suggestions regarding**  **the values**  **selected for**  **the**

**parameters. Upon**  **completion of**  **the interviews,**  **DOE will**  **revise its**  **industry cash**  **flow**

**model based**  **on the**  **feedback provided.** 

12.2.3.3 Manufacturer Sub­Group Analysis

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

**adequate for**  **assessing differential**  **impacts among**  **sub­groups of**  **manufacturers. Smaller** 

**manufacturers, niche**  **players, or**  **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 will**  **discuss the**  **potential sub­groups**  **that**

**12­3 have**  **been identified**  **for the**  **analysis. DOE**  **will ask**  **manufacturers and**  **other stakeholders** 

**to suggest**  **what sub­groups**  **or characteristics**  **are the**  **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**  **that is**  **likely to**  **result from**  **imposition of** 

**standards. It**  **further directs**  **the U.S.**  **Attorney General**  **to determine**  **the impacts,**  **if any,**  **of**

**any decrease**  **in competition.**  **DOE will**  **make a**  **determined effort**  **to gather**  **and report** 

**firm­specific financial**  **information and**  **impacts. The**  **competitive analysis**  **will focus**  **on**

**assessing the**  **impacts to**  **smaller manufacturers.**  **The assessment**  **will be**  **based on** 

**manufacturing cost**  **data and**  **information collected**  **from interviews**  **with manufacturers.** 

**The manufacturer**  **interviews will**  **focus on**  **gathering information**  **that would**  **help in** 

**assessing asymmetrical**  **cost increases**  **to some**  **manufacturers, the**  **potential increase**  **in**

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

**market entry**  **(e.g., proprietary**  **technologies).**

12.2.3.5 Manufacturing Capacity Impact

**One of**  **the significant**  **outcomes of**  **standards could**  **be the**  **obsolescence of** 

**existing manufacturing**  **assets, including**  **tooling and**  **investment. The**  **manufacturer**

**interview guide**  **will have**  **a series**  **of questions**  **to help**  **identify impacts**  **on manufacturing** 

**capacity, specifically**  **capacity utilization**  **and plant**  **location decisions**  **in the**  **United States** 

**and North**  **America with**  **and without**  **a standard;**  **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 new**  **energy conservation**  **standards on**  **employment is**  **an important** 

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

**might be**  **affected, the**  **interview will**  **explore current**  **employment trends**  **in the**  **lamp**

**industry and**  **solicit manufacturer**  **views on**  **changes in**  **employment patterns**  **that may** 

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

**guide will**  **focus on**  **current employment**  **levels associated**  **with manufacturers**  **at each**  **of**

**their production**  **facilities; expected**  **future employment**  **levels, with**  **and without**  **a**

**standard; differences**  **in workforce**  **skills; and**  **issues related**  **to the**  **retraining of** 

**employees.**

12.2.3.7 Cumulative Regulatory Burden

**DOE seeks**  **to mitigate**  **the overlapping**  **effects on**  **manufacturers of**  **standards and** 

**other regulatory**  **actions affecting**  **the same**  **equipment or**  **companies. Based**  **on its**  **own**

**research and**  **discussions with**  **manufacturers, DOE**  **identified several**  **regulations relevant** 

**to general**  **service fluorescent**  **lamps and**  **incandescent reflector**  **lamps, including** 

**standards for**  **other products**  **made by**  **GSFL and**  **IRL manufacturers,**  **and State**  **and**

**international energy**  **conservation standards.** 

**12­4**12.3 PRELIMINARY MANUFACTURER IMPACT OVERVIEW

**During the**  **ANOPR phase,**  **DOE identified**  **qualitative and**  **quantitative public** 

**financial and**  **market information**  **to help**  **evaluate the**  **impact of**  **potential new**  **regulations**

**on lamp**  **manufacturer financial**  **performance, manufacturing**  **capacity and**  **employment**

**levels, and**  **product utility**  **and innovation.**  **In addition,**  **DOE researched**  **the cumulative** 

**burden that**  **industry may**  **face from**  **the overlapping**  **effect of**  **new or**  **recent DOE**  **energy**

**conservation standards**  **or other**  **regulatory action**  **affecting the**  **same product**  **or industry.** 

**In addition**  **to researching**  **publicly available**  **data, DOE**  **conducted interviews**  **with**

**manufacturers primarily**  **in order**  **to identify**  **key issues**  **and gain**  **insights into**  **the**

**qualitative impacts**  **of energy**  **conservation standards.**  **The primary**  **sources of**  **this**

**information were**  **interviews with**  **manufacturers of**  **GSFL and**  **IRL conducted**  **during the** 

**first quarter**  **of FY**  **2007. To**  **maintain confidentiality,**  **DOE did**  **not identify**  **the individual** 

**manufacturers that**  **disclosed information.**  **Instead, the**  **evaluation only**  **reports aggregated** 

**information and**  **does not**  **disclose sensitive**  **information or**  **identify company­specific** 

**information. For**  **each product,**  **DOE used**  **an interview**  **guide to**  **gather responses**  **from**

**multiple manufacturers**  **on several**  **issues. Appendix**  **12A contains**  **a copy**  **of the** 

**preliminary manufacturer**  **interview guide**  **used for**  **GSFL and**  **IRL manufacturers.** 

**The following**  **sections summarize**  **publicly available**  **data as**  **well as**  **information**

**gathered during**  **interviews for**  **the preliminary**  **manufacturer impact**  **analysis. Section** 

**12.3.1 summarizes**  **the publicly**  **available industry**  **data. Section**  **12.3.2 outlines**  **the**

**general interview**  **structure and**  **summarizes the**  **issues discussed**  **during the**  **preliminary**

**MIA interviews.**  **Sections 12.4**  **to** Error! Reference source not found. **present a** 

**summary of**  **the preliminary**  **MIA interviews**  **for each**  **product. Section**  **12.6 addresses** 

**issues common**  **to all**  **lamps covered**  **in this**  **rulemaking.**

12.3.1 Overview of Industry Data

**DOE compiled**  **industry data**  **to assess**  **the electric**  **lamp industry**  **cost structure**  **and**

**manufacturing utilization**  **and capitalization**  **rates. The**  **following section**  **summarizes**

**public data**  **DOE obtained**  **from U.S.**  **Census Bureau**  **reports.**

12.3.1.1 Industry Cost Structure

**DOE developed**  **the electric**  **lamp industry**  **cost structure**  **from the**  **U.S. Census** 

**Bureau, Annual**  **Survey of**  **Manufacturers**

**,** Statistics for Industry Groups and Industries

**from 2002**  **to 2005.** 

**Table 12.3.1**  **presents the**  **electric lamp**  **industry employment**  **levels and**  **earnings**

**from 2002­2005.**  **The statistics**  **illustrate a**  **steady decline**  **in the**  **number of**  **production**

**and non­production**  **workers in**  **the industry.** 

**12­5**1 Table 12.3.1 Electric Lamp Industry Employment and Earnings

Year Production Workers All Employees Payroll for All Employees

**(thousand 2005**  **dollars)**

**2002 9,595**  **11,552 489,781** 

**2003 8,972**  **10,790 481,524** 

**2004 8,022**  **9,867 512,514** 

**2005 7,604**  **9,289 495,057** 

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

**of shipment**  **value from**  **2002­2005. The**  **cost of**  **materials and**  **the cost**  **of payroll**  **for**

**production workers**  **have increased**  **since 2002.**  **The cost**  **of total**  **payroll has**  **also risen** 

**since 2002.** 

2 Table 12.3.2 Electric Lamp Industry Census Data

Year Cost of Materials

**(percent of**  **shipment**

**value)** Cost of Payroll

for Production Workers

**(percent of**  **shipment**

**value)** Cost of Total Payroll:

Production +

Administration

**(percent of**  **shipment**

**value)**

**2002 33.9**  **14.5 18.6** 

**2003 36.0**  **14.0 18.5** 

**2004 35.8**  **15.4 20.3** 

**2005 39.6**  **15.0 20.1** 

12.3.1.2 Inventory Levels and Capacity Utilization Rates

**Table 12.3.3**  **shows the**  **year­end inventory**  **for the**  **electric lighting**  **industry**

**obtained from**  **the U.S.**  **Census Bureau,**  **Annual Survey**  **of Manufacturers** 

**,** Statistics for

Industry Groups and Industries **from 2002**  **to 2005.**  **Both in**  **dollars and**  **as a**  **percentage**

**of shipment**  **value, the**  **end­of­year inventory**  **for the**  **industry has**  **steadily increased**  **since**

**2002.**

3 Table 12.3.3 Electric Lamp Industry Census Data

Year End­of­Year Inventory

**(million 2005**  **dollars)** End­of­Year Inventory

**(percent of**  **shipment value)** 

**2002 213,569**  **8.1**

**2003 212,207**  **8.2**

**2004 226,482**  **9.0**

**2005 235,934**  **9.6**

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

**Bureau, “Current**  **Industrial Reports,”**  Survey of Plant Capacity **from 2001**  **to 2005.**  **Table**

**12.3.4 presents**  **production capacity**  **utilization rates**  **for the**  **electric lighting**  **equipment**

**industry. Full**  **production capacity**  **is defined**  **as the**  **maximum level**  **of production**  **an**

**establishment could**  **attain under**  **normal operating**  **conditions. In**  **the** Survey of Plant

**12­6 1** 

**2**

**3**

**4**

**5** Capacity **report, the**  **full production**  **utilization rate**  **is a**  **ratio of**  **the actual**  **level of** 

**operations to**  **the full**  **production level.** 

4 Table 12.3.4 Full Production Capacity Utilization Rates

Year Capacity Utilization Rates

**(Percent)**

Electric Lamp Bulb

& Part

Manufacturing Residential Electric

Lighting Fixture

Manufacturing Commercial/Industrial/Institutional

Electric Lighting Fixture

Manufacturing

**200 63**  **46 58** 

**200 67**  **52 54** 

**200 61**  **62 55** 

**200 71**  **55 63** 

**200 62**  **62 61** 

12.3.2 Preliminary Manufacturing Interview Overview

**In addition**  **to reviewing**  **publicly available**  **data, DOE**  **conducted interviews**  **of**

**manufacturers for**  **a preliminary**  **manufacturer impact**  **analysis. The**  **following section** 

**highlights the**  **topics discussed**  **during these**  **interviews. A**  **copy of**  **the manufacturer** 

**interview guide**  **used when**  **conducting these**  **interviews can**  **be found**  **in Appendix**  **12A.**

12.3.2.1 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 new** 

**standards. During**  **the interviews,**  **DOE engages**  **the manufacturers**  **in a**  **discussion about** 

**what they**  **perceive to**  **be the**  **key issues**  **in the**  **rulemaking. For**  **example, key**  **issues in** 

**previous rulemakings**  **have included**  **concerns over**  **patent protections**  **that might**  **prevent**

**some companies**  **from implementing**  **higher­efficiency designs.** 

12.3.2.2 Production and Product Mix

**DOE requests**  **manufacturers’ views**  **on what**  **they perceive**  **to be**  **the possible** 

**impact of**  **new standards**  **on profitability.**  **For instance,**  **the capital**  **and product**  **conversion**

**outlays needed**  **to upgrade**  **or redesign**  **products and**  **product platforms**  **before they**  **have**

**reached the**  **end of**  **their useful**  **life may**  **create significant**  **conversion costs,**  **resulting in** 

**reduced cash**  **flow and**  **stranded investments.**  **Higher energy**  **conservation standards**  **may**

**also result**  **in higher**  **per­unit costs**  **that could**  **cause consumers**  **to shift**  **to less**  **costly**

**products.**

12.3.2.3 Conversion Costs

**During the**  **interviews, DOE**  **asks manufacturers**  **to quantify**  **and explain**  **both the** 

**capital and**  **the product**  **conversion costs**  **necessary to**  **raise the**  **energy efficiency**  **of their** 

**product lines**  **to the**  **proposed standard**  **levels. In**  **some instances,**  **manufacturers may**  **be**

**able to**  **meet proposed**  **standard levels**  **by modifying**  **existing products.**  **In other**  **cases, the** 

**12­7 necessary**  **changes may**  **entail a**  **complete product­line**  **redesign. In**  **these situations,**  **an**

**increase in**  **a standard**  **will cause**  **manufacturers to**  **incur one­time**  **conversion capital** 

**expenditures and**  **product­conversion expenses.**  **Conversion capital­expenditures**  **are one** 

**time investments**  **in property,**  **plant and**  **equipment. Product­conversion**  **expenses include** 

**one­time investments**  **in research,**  **product development,**  **testing and**  **marketing.**

**A potentially**  **significant outcome**  **of new**  **standards could**  **be the**  **obsolescence of** 

**existing manufacturing**  **assets, including**  **tooling and**  **other capital**  **investment. The** 

**interview guide**  **includes questions**  **to identify**  **impacts on**  **manufacturing capacity.**  **These**

**questions were**  **developed to**  **understand the**  **impact of**  **potential new**  **standards on:** 

• **U.S. and**  **North American**  **manufacturing capacity;** 

• **capacity utilization**  **and plant**  **location decisions**  **in the**  **United States**  **and North** 

**America both**  **with and**  **without standards;** 

• **the ability**  **of manufacturers**  **to upgrade**  **or remodel**  **existing facilities**  **to accommodate** 

**a new**  **product mix;**  **and**

• **the nature**  **and value**  **of stranded**  **assets, if**  **any.**

**DOE will**  **explore current**  **trends in**  **production employment**  **and solicit** 

**manufacturer views**  **on changes**  **in employment**  **patterns resulting**  **from new**  **energy**

**conservation standards.**  **Questions regarding**  **employment impacts**  **help to**  **understand:**

• **current employment**  **levels associated**  **with manufacturing**  **at each**  **production facility;** 

• **expected future**  **employment levels**  **with and**  **without new**  **standards; and** 

• **differences in**  **workforce skills**  **and issues**  **related to**  **retraining.**

12.3.2.4 Exports, Foreign Competition, and Outsourcing

**Energy conservation**  **standards for**  **IRL and**  **GSFL can**  **have an**  **impact on** 

**projected export**  **sales, the**  **portion of**  **the domestic**  **market served**  **by foreign**  **competition,**

**and domestic**  **production levels.**  **The preliminary**  **MIA interview**  **questions examined** 

**manufacturer views**  **on the**  **impacts new**  **standards would**  **have on**  **exports, foreign** 

**competition, and**  **outsourcing.**

12.3.2.5 Market Shares and Industry Consolidation

**New 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**  **ask manufacturers**  **to share**  **their perspectives**  **on**

**industry consolidation**  **both in**  **the absence**  **of new**  **standards and**  **assuming new**  **standards**

**at various**  **efficiency levels.**  **The interview**  **questions focus**  **on gathering**  **information that** 

**helps assess:** 

• **disproportionate cost**  **increases to**  **some manufacturers;** 

• **increased proportion**  **of fixed**  **costs potentially**  **increasing business**  **risks; and** 

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

**12­8 The**  **need to**  **assess anti­competitive**  **effects of**  **proposed standards**  **comes from**  **the**

**need to**  **protect consumer**  **interests. During**  **the interviews,**  **DOE solicits**  **information to** 

**understand if**  **new standards**  **could result**  **in disproportionate**  **economic or**  **performance**

**penalties for**  **particular consumer**  **or user**  **subgroups. Manufacturers**  **are also**  **asked if**  **new**

**standards could**  **result in**  **products that**  **will be**  **more or**  **less desirable**  **to consumers**  **due to** 

**changes in**  **product functionality,**  **utility, or**  **other features.** 

12.3.2.6 Cumulative 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 individual**  **manufacturers, groups**  **of manufacturers,**  **or entire**  **industries. Assessing**  **the**

**impact of**  **a single**  **regulation may**  **overlook this**  **cumulative regulatory**  **burden.**

**Expenditures associated**  **with meeting**  **other regulations**  **are an**  **important aspect**  **of**

**DOE’s consideration**  **of the**  **“cumulative regulatory**  **burden” industry**  **faces. The** 

**interviews help**  **DOE identify**  **the level**  **and timing**  **of investments**  **manufacturers are** 

**expecting to**  **incur because**  **of these**  **regulations. Manufacturers**  **are also**  **asked under**  **what**

**circumstances they**  **might be**  **able to**  **make expenditures**  **related to**  **regulations and** 

**standards.**

12.4 GENERAL SERVICE FLUORESCENT LAMPS

**During the**  **course of**  **the preliminary**  **MIA for**  **GSFL, DOE**  **interviewed**

**manufacturers of**  **fluorescent lamps.**  **DOE used**  **information from**  **these interviews**  **to**

**review the**  **engineering analysis**  **in Chapter**  **5. These**  **interviews also**  **discussed the** 

**business­related topics**  **summarized below.**  **DOE’s objective**  **was to**  **become familiar**  **with**

**each company’s**  **particular market**  **approach and**  **financial structure,**  **and its**  **concerns**

**about new**  **energy conservation**  **standards. These**  **meetings are**  **covered by**  **non­disclosure**

**agreements and**  **the company­specific**  **information resides**  **with DOE**  **contractors. Before** 

**each visit,**  **DOE provided**  **company representatives**  **with an**  **interview guide**  **(see**

**Appendix 12A)**  **that included**  **the topics**  **outlined in**  **section 12.3.2**  **of this**  **chapter. The** 

**following paragraphs**  **summarize manufacturers’**  **principle concerns**  **about new**  **energy**

**conservation standards**  **for GSFL,**  **namely product**  **mix, conversion**  **costs, and**  **materials**

**availability.**

12.4.1 Product Mix

**Manufacturers interviewed**  **believe that**  **energy conservation**  **standards will**  **impact**

**the product**  **mix of**  **fluorescent lamps.**  **In particular,**  **manufacturers expect**  **that higher** 

**efficacy standards**  **could eliminate**  **the use**  **of certain**  **phosphors or**  **even change**  **the type**  **of**

**lamp installed.**  **For example,**  **if set**  **high enough,**  **new standards**  **could cause**  **the market**  **to**

**convert from**  **T12 general**  **service fluorescent**  **lamp product**  **lines to**  **T8 lamp**  **product**

**lines. Furthermore,**  **some manufacturers**  **also commented**  **that while**  **most materials**  **are**

**available to**  **make more**  **energy­efficient lamps,**  **some materials**  **are increasing**  **in price.** 

**These higher**  **material prices**  **could in**  **turn increase**  **the cost**  **of producing**  **a lamp,**  **and**

**thereby have**  **an impact**  **on lamp**  **price.**

**12­9**12.4.2 Conversion Costs

**Manufacturers expressed**  **concern over**  **conversion costs**  **associated with**  **making**

**their equipment**  **produce lamps**  **that are**  **standards compliant.**  **At some**  **high standard** 

**levels, the**  **new requirements**  **might force**  **manufacturers to**  **convert nearly**  **exclusively**

**from T12**  **to T8**  **product lines.**  **Currently, most**  **manufacturers produce**  **both T12**  **and T8** 

**lamps. However,**  **manufacturers indicated**  **that if**  **the production**  **volume were**  **to shift** 

**from T12**  **to T8,**  **some manufacturers**  **felt that**  **the typical**  **regulatory compliance**  **time**

**period (i.e.,**  **3 years)**  **to convert**  **production from**  **a T12**  **equipment line**  **to a**  **T8 equipment** 

**line could**  **be too**  **short.**

12.4.3 Materials Availability

**Certain manufacturers**  **expressed concern**  **about the**  **availability of**  **certain rare** 

**earth phosphors**  **in sufficient**  **quantities in**  **order to**  **comply with**  **the standard**  **level. In** 

**particular, the**  **concern focused**  **on a**  **movement toward**  **a new**  **minimum efficacy**  **standard**

**that was**  **too aggressive**  **and might**  **require a**  **rapid conversion**  **to more**  **efficacious lamps** 

**than the**  **phosphor manufacturers**  **could accommodate.**  **DOE notes**  **that this**  **is also**  **an**

**important issue**  **for manufacturers**  **because the**  **phosphor “wall**  **thickness” (i.e.,**  **quantity**

**applied to**  **the inside**  **of the**  **lamp wall)**  **in a**  **general service**  **fluorescent lamp**  **directly**

**relates to**  **lamp efficacy.** 

12.5 INCANDESCENT REFLECTOR LAMPS

**During the**  **course of**  **the preliminary**  **MIA for**  **IRL, DOE**  **interviewed**

**manufacturers of**  **reflector lamps.**  **DOE used**  **the information**  **from these**  **interviews to** 

**review the**  **engineering analysis**  **in Chapter**  **5. The**  **interviews also**  **discussed the**  **business**

**related topics**  **summarized below.**  **DOE’s objective**  **was to**  **become familiar**  **with each** 

**company’s particular**  **market approach**  **and financial**  **structure, and**  **its concerns**  **about new** 

**energy conservation**  **standards. These**  **meetings are**  **covered by**  **non­disclosure**

**agreements and**  **the company­specific**  **information resides**  **with DOE**  **contractors. Before** 

**each visit,**  **DOE provided**  **company representatives**  **with an**  **interview guide**  **(contained in** 

**Appendix 12A)**  **that included**  **the topics**  **discussed in**  **section 12.3.2**  **of this**  **chapter. The** 

**following paragraphs**  **summarize manufacturers’**  **principle concerns**  **about new**  **standards**

**for IRL,**  **namely product**  **mix and**  **the time**  **allowed for**  **conversion of**  **high­volume**

**production equipment.** 

12.5.1 Product Mix

**Manufacturers commented**  **that increasing**  **the efficacy**  **standard may**  **change the** 

**mix of**  **products in**  **the market.**  **In particular,**  **certain lamp**  **shapes and**  **sizes may**  **not be** 

**able to**  **meet certain**  **efficacy standards.**  **For example,**  **an R20**  **halogen lamp**  **would likely** 

**not meet**  **the same**  **efficacy standard**  **as other**  **comparable halogen**  **lamps. Furthermore,** 

**substitute products,**  **such as**  **CFL reflector**  **lamps, may**  **become more**  **attractive if**  **new**

**efficacy standards**  **cause IRL**  **to be**  **significantly more**  **expensive, reducing**  **the relative** 

**price difference**  **between IRL**  **and replacement**  **lamps such**  **as CFL**  **reflector lamps.** 

**12­10**12.5.2 Conversion Costs

**Manufacturers commented**  **that, depending**  **on the**  **timeframe for**  **transition, they** 

**could face**  **production capacity**  **problems if**  **DOE were**  **to raise**  **standards so**  **high that** 

**compliance required**  **the use**  **of halogen**  **capsules. Similarly,**  **manufacturers commented** 

**that they**  **were concerned**  **that if**  **DOE were**  **to raise**  **the standard**  **to a**  **level that**  **required**

**infrared reflective**  **(IR) coatings**  **on the**  **halogen capsules,**  **there would**  **be a**  **production**

**capacity problem**  **because that**  **process is**  **time consuming**  **because it**  **involves layering** 

**dozens of**  **thin film**  **coatings on**  **the capsule.** 

12.6 SUMMARY OF MAJOR ISSUES FROM PRELIMINARY MIA

**DOE conducted**  **a series**  **of preliminary**  **interviews with**  **manufacturers to**  **assess**

**their concerns**  **about potential**  **impact of**  **a change**  **in the**  **regulatory standard**  **or coverage** 

**of fluorescent**  **and incandescent**  **reflector lamps.**  **In general,**  **manufacturers identified**  **the**

**following major**  **issues of**  **concern: a)**  **Sufficient time**  **to retool**  **in response**  **to the** 

**standards; b)**  **Availability of**  **materials to**  **produce standards­compliant**  **lamps; and**  **c)**

**Maintaining product**  **availability and**  **features that**  **consumers use.** 

12.6.1 Retooling Equipment to Produce Standards­Compliant Lamps

**All of**  **the manufacturers**  **interviewed expressed**  **concern over**  **the time**  **periods**

**allowed under**  **EPCA for**  **developing standards­compliant**  **lamps. For**  **GSFL, some** 

**manufacturers expressed**  **concern about**  **the time**  **period necessary**  **to retool**  **to produce** 

**standards­compliant lamps**  **(e.g., converting**  **from a**  **T12 product**  **line to**  **a T8**  **product line** 

**at certain**  **standard levels).**  **For IRL,**  **manufacturers commented**  **that, depending**  **on the** 

**timeframe for**  **transition, they**  **could face**  **production capacity**  **problems if**  **DOE were**  **to**

**raise standards**  **such that**  **it required**  **the use**  **of halogen**  **capsules or**  **infrared reflective**  **(IR)**

**coatings on**  **halogen capsules.**  **Manufacturers felt**  **there could**  **be a**  **production capacity** 

**problem due**  **to the**  **process time**  **involved in**  **layering dozens**  **of IR**  **reflective thin**  **film**

**coatings on**  **the capsule.**  **The high**  **volumes associated**  **with both**  **major lamp**  **types were** 

**cited frequently**  **as the**  **underlying cause**  **for concern.** 

12.6.2 Availability of Materials to Produce Standards­Compliant Lamps

**Manufacturers interviewed**  **expressed concern**  **over the**  **availability of**  **materials to** 

**manufacture standards­compliant**  **lamps. More**  **specifically, concern**  **was expressed**  **over**

**potential shortages**  **of certain**  **materials (e.g.,**  **certain phosphors,**  **such as**  **those that** 

**produce blue**  **light) that**  **could increase**  **the production**  **cost.**

12.6.3 Maintaining Product Availability and Features

**Manufacturers expressed**  **concern to**  **DOE over**  **the potential**  **impact the**  **regulation**

**may have**  **on their**  **ability to**  **continue to**  **supply a**  **wide diversity**  **of products**  **with**

**attributes and**  **features that**  **their customers**  **require. Depending**  **on the**  **mandatory**

**standard level,**  **manufacturers expressed**  **concern that**  **certain lamp**  **shapes and**  **sizes may** 

**12­11 be**  **eliminated from**  **the market,**  **or that**  **significant market**  **shifts could**  **occur (e.g.,**  **from**

**incandescent technology**  **to compact**  **fluorescent lamps).** 

**DOE will**  **be conducting**  **the manufacturer**  **impact analysis**  **for the**  **NOPR stage**  **of**

**this rulemaking.**  **Therefore, DOE**  **will be**  **investigating this**  **preliminary list**  **of issues**  **in**

**more depth,**  **as well**  **as discussing**  **other impacts**  **that manufacturers**  **may experience.** 

**DOE invites**  **stakeholders to**  **comment on**  **these and**  **other issues,**  **relating to**  **the regulatory** 

**impacts on**  **manufacturers.**

**DOE considered**  **the possible**  **effect of**  **energy conservation**  **standards for**  **GSFL**

**and IRL**  **on small**  **businesses. At**  **this time,**  **DOE is**  **not aware**  **of any**  **small manufacturers** 

**of the**  **lamps being**  **considered in**  **this rulemaking.**  **Should any**  **small business** 

**manufacturers be**  **identified, DOE**  **will study**  **the potential**  **impacts in**  **greater detail**  **during**

**the MIA,**  **which DOE**  **will conduct**  **as a**  **part of**  **the NOPR**  **analysis.**

**12­12**REFERENCES

**1 U.S.**  **Census Bureau.**  **2005 Annual**  **Survey of**  **Manufacturers: Table**  **2 ­ Statistics**  **for**

**Industry Groups**  **and Industries:**  **2005 and**  **Earlier Years.**  **December, 2006.**  **Washington,**

**D.C. <www.census.gov/prod/2006pubs/am0531gs1.pdf>** 

**2 Ibid.** 

**3 U.S.**  **Census Bureau.**  **2005 Annual**  **Survey of**  **Manufacturers: Table**  **6**

**– Value**  **of**

**Manufacturers’ Inventories**  **by Stage**  **of Fabrication**  **for Industry**  **Groups and**  **Industries:**

**Beginning and**  **End of**  **Year. November,**  **2006. Washington,**  **D.C.**

**<www.census.gov/prod/2006pubs/am0531gs1.pdf>**

**U.S. Census**  **Bureau. 2005**  **Annual Survey**  **of Manufacturers:**  **Table 2** 

**– Statistics**  **for**

**Industry Groups**  **and Industries:**  **2005 and**  **Earlier Years.**  **December, 2006.**  **Washington,**

**D.C. <www.census.gov/prod/2006pubs/am0531gs1.pdf>.** 

**4 U.S.**  **Census Bureau.**  **2007 Current**  **Industrial Reports:**  **Table 1a** 

**– Full**  **Production**

**Capacity Utilization**  **Rates by**  **Industry: Fourth**  **Quarters 2001**  **through 2005.**  **January,**

**2007. Washington,**  **D.C. <http://www.census.gov/prod/2007pubs/mqc1­05.pdf>.** 

**12­13**