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### U.S. Department of Energy

Commercial and Industrial Pumps Negotiated Rulemaking Working Group Meeting Summary—Fifth Meeting Forrestal Building, Washington, D.C. April 29 - 30, 2014

Members in Attendance (Day 1) Lucas Adin U.S. Department of Energy Tom Eckman Northwest Power and Conservation Council (ASRAC Member) Robert Barbour TACO, Inc. Charles Cappelino ITT Industrial Process Greg Case Pump Design, Development and Diagnostics (Hydraulic Institute) Gary Fernstrom California IOUs Mark Handzel Xylem Corporation Albert Huber Patterson Pump Company Dan Delaney Regal Beloit (alternate for Howard Richardson) Joanna Mauer Appliance Standards Awareness Project Doug Potts American Water Charles Powers Flowserve Corporation, Industrial Pumps Louis Starr Northwest Energy Efficiency Alliance Greg Towsley Grundfos USA Meg Waltner Natural Resources Defense Council

Doug Brookman Facilitator, Public Solutions, Inc.

Absent Steve Rosenstock Edison Electric Institute

Additional Attendees Jeff Alascio, Alex Bosenberg, Robert Boteler, Brian Carlson, Daniel Cohen, Katie Coughlin, Charles Foster, Jeremiah Freeman, Emily Marchett i, Harry Massie, Jianga ng Hu, Elizabeth Kohl, Christopher Lau, Brent McManis, Laura Petri llo-Groh, Callie Reis, Arnie Sdano, Brent McManis, Steve Thompson, Daniel Weintr aub, Sarah Widder and Alison Williams

Day 1—Working Group Meeting #5, April 29, 2014 Facilitator Doug Brookman called the Working Gr oup (WG) meeting to order and welcomed all present at 9:05AM. The facilita tor noted that a few members were running late based, again, on

inclement weather.

The WG proceeded with introductions around the r oom. The facilitator made brief introductory remarks, describing the good progress made in th e last meeting. He referenced the following agenda elements compiled by DOE and the consultant team:

 Provide an overview of items to cover— the pathway to finalizing the term sheet2 Page | 2  An overview on progress to date

 Compiling an interim report on Progress to Date to ASRAC

 The process for establishing a test procedure and

 Scheduling issues and a review of the analyses that need to be completed

Lucas Adin started by providing an overview, not ing that the WG had two in-person meetings

left after this one and a lot to cover in that time. He noted that the team had performed a lot of detailed analysis that would be presented, including:

 Preliminary estimates of potential energy savings for pump types

 Metrics

 Test procedure

Continuing, he described the engi neering analysis, which consid ers the kinds of technologies available, which are then screened in or out for improving the efficiency of a pump and then consider costs and how a cost-efficiency curve is utilized to show the cost of an additional increment of efficiency improvement (p.16). He stated his intention th at the WG provide an interim report to ASRAC. One issue to be c onsidered was whether the WG should consider expanding the existing authorization (beyond wh at would be the normal term sheet) to consider adding test procedur e deliberations to the negotia tion. Typically DOE takes the initiative to create and publish a test procedure. He referenced raising this issue in the report

to ASRAC.

Dan Weintraub started presenting on the general process of how we set efficiency levels, providing the following overview:

 Efficiency levels can be descri bed as a possible standard level

 These are levels that can be evaluated and analyzed to dete rmine if they're economically justified. In a typical rulemaking, DOE esta blishes and evaluates multiple efficiency levels for each equipment cl ass under cons ideration.

 In this case the WG may participate in establishing these levels.

 And the WG will eventually give recomm endations on what levels DOE should be setting.

 We will review the economic analysis and the energy savings—that would be the basis

for the WG’s decisions

Dan continued, providing an example of setti ng a baseline, using the EU methodology as an starting point (p.27). He clarified that the EU MEI is a market-based index that simply represents how well the pump’s efficiency compar es to the marketplace as a whole. Continuing, “step one of this process, is defining the e fficiency surface...due to the size and geometry differences, every pump in the marketplac e has a different maximum attainable efficiency....based on extensive rese arch, the EU concluded that atta inable efficiency is a strong function of flow and specific speed. The resear ch defined an efficiency surface by the average efficiency seen in the EU marketplace for all pumps within the scope. And this was set as a function of flow and specific speed because thos e were the factors that were defined. So all

pum ps falling on this MEI surface are, therefore, of equal, relative efficiency. They're on the surface. They all compare similarly in the market place. So this allows pumps of varying flows and specific speeds to be compared on an even playing field.”3 Page | 3 Dan continued, “using the surface to define MEI le vels, you can translate the efficiency surface up and down to create efficiency levels that rem ove or cut off pumps from the marketplace. So you have the surface. You move it up. You cut off more pumps. You move it down. You cut off less pumps. The equation that we have ri ght there, that is the equation for minimum efficiency. That's the equation of that surface. And on the end, almost covered by the toolbar but thankfully not, we have a red C. That's C- value. That just allo ws you to translate that surface up and down. And in the EU, that's what they used.”

He continued, illustrating in 2-D an example s howing speed and flow of a pump, shifting the surface up and down, cutting off dots and changing the MEI (p.32). Responding to a question Dan clarified, “the shape of the surface is the key. And then the population will sit in relation to that surface. The surface is then moved up and dow n with that C-value so that you're cutting off as many pumps as you are targeting to cut off.” Another member added that the shape of the

curve is fixed—its level on a vertical axis is variable depending upon C-factor. Dan summarized, “C-value is a tran slation factor that allows you to move up and down the y -axis, allows that surface to move up and down the y -axis, and determine how many pumps you want to cut off at a given efficiency level.”



### Continuing the EU example, “... looking at the EU lot 11 efficiency level results, this is how the EU did what we were just explaining....each efficiency level in the EU targeted a constant failure rate for each equipment class. So that m eant they looked in their analysis. Eventually they set levels in their original analysis. Down at the bottom, you see they targeted 5 percent of the pumps cut off, 10 percent, 15, and so on. And for each one of those in each equipment class, they found the C-value that would cut off the appropr iate number of pumps. And that C-value is different for each equipment class and each sp eed because they looked at them as being independent and having their own kind of proper ties as a pump....this is how the EU did it. And you can see if we were to mimic our process, I drew in EL-1, EL-2, EL-3 above those. That's how it would be done. We would say, we have all of these levels. Now we know we're going to determine what the cost is to get there. And then we're going to see whether it's economically feasible and so on.”

A member clarified that DOE is not proposing th e use the European MEI method. Dan said not at this time. The member asked why. Alison Williams responded that, consistent with earlier WG discussions, this metric is trying to cove r pumps along with motors and controls. “This (MEI) schema only covers pumps, bare pumps.” The same member expressed concerns, from the manufacturer’s caucus, about using a single me tric for both cases.... “We don't agree with it. And we think it's a problem. We think it will be confusing in the marketplace, and we don't think it will yield what you are looking for. (p.45)”

Choosing an Efficiency Level Dan Weintraub continued presenting, describing two parts: how you choose an efficiency level and how you define that level with a metric. Us ing what the EU did as a model, he described how the WG would be targeting ‘failure rates’ for each equipment class. And based on the discussion in the WG’s last meeting, we targeted looking at 10 percent, 25 percent, 40 percent, 55 percent, 70 percent and 85 percent of pumps failing—our e fficiency levels—at each4 Page | 4 individual equipment class. Next we must dete rmine C-values for each equipment class at each efficiency level. This requires utilizing a metric. He showed the PER metric and described the ‘equation work’ necessary to determine C-values. Utilize equal weighting for 75%, BEP and 110%. At each load point you have hydrauli c power of the pump divided by the pump’s efficiency times the motor efficiency, whic h gets you the input pow er to the pump. Hydraulic power is a function of flow and head. For each pump, there is a hydraulic power that is defined because each pump is going to have a different attainable efficiency. Therefore, hydraulic power is fixed for each pump. Motor effici ency is also fixed because it is going to be a function of what you choose as the minimum mo tor efficiency allowable in this metric.

Summarizing: the only variable in the equation, when you are looking to set an efficiency level, is the pump efficiency at each level—the pump efficiency at 75%, BEP and 110%. So the minimum required pump efficiency equals this f unction of flow and specific speed minus C—for a given pump, flow and specific speed are fixed. C-value is the only thing you can change to change the minimum required efficiency—so mi nimum required pump efficiency is purely a function of C. Dan continued, supplying a specif ic example of how the EU regulation works and how the proposed PER is similar (p.53).

Next, Dan compared C-values developed from U.S. pump data to EU C-values. He concluded, “the only effective difference here, for an MEI, y our failing C-value is the worst of the three, the one that you fail at, because you have to pass in dependently at 75 percen t flow, 100 percent, and 110 percent. So the worst value you have is the one that fails. With the PER, it's effectively right now a weighted average. Three points. Ta ke your weighted average. That's what you're going to compare against the metric. So all pumps are then shifted. All pumps are affected the same way. But the end effect is that the C-va lues under a PER are going to show themselves to be a little more efficient, a little better-performing, but a litt le better-performing all across the board because you're taking a weighted average, rather than taking the worst performing number (p.59).”

A member asked whether there was a way to translat e from PER to MEI, or if it is possible to do a ‘cross-walk’ for comparison purposes. Dan stated that there is no mathematical crosswalk because under the MEI one bad load point that fails, so even if everything else was good, you fail. Under the PER you are averaging to get the score. Another member stated that the MEI was designed to reflect real world conditions where a pump ma y operate anywhere along the spectrum from 75 % to 110% and stil l be required to be efficien t. He continued, pointing out that whatever the evaluation schema, pump de signers will design to meet that level of performance. The MEI method assures that you ge t a ‘higher overall curve’ when operating.

A member noted that a company selling intern ationally would have additional administrative overhead dealing with two different methods. A nother member asked if it is possible to mimic the European system.

Examining the Data (p.74) Determ ining Efficiency Levels (78) Dan started by pointing out that the C-values for end sucti on closed-couple and end suction frame-mounted pumps were all very similar, within their respective of speeds.5 Page | 5 Dan described a set of analyses to determine th e efficiency levels of a given product. Those analyses are:

 average lifecycle cost savings, which in cludes incremental equipment costs,

 operational savings,

 define the lifecycle costs,

 percent of population with net cost/net benefit/no impact,

 national energy savings,

 national net present value, and

 change in industry net present value (impact on manufacturers) After all these analyses are completed, the WG w ill review the results to propose standard levels.

He described the methodology—how a manufacture r would determine whether a pump would pass or fail at an efficiency le vel. As follows (handout p.16):

 You calculate your PER pump according to the methodology described in the test procedure. (Right now you have a calcul ator spreadsheet that you can use).

 Then use the energy conservation standard formula to determine the PER standard specific to the pump models, hydraulic charac teristics at a given efficiency level.

Example: “in this equation, end suction closed-c ouple, 1,800 rpm with sta ndard set at EL-3. EL3, off of the table that we had before, has a C- value is 126.86. So in this equation, PER standard equals, this big bracket right here is one over BEP pump, requi red BEP pump efficiency. And that can be pulled out because we knew that that was the only variable. You multiply that times all of these factors, which are static and determined by the pump itself, your hydraulic power, the factor of .947 or .985, and the motor efficiencies, which would be pulled off a table, as we have

discussed thus far. You calculate that out, and you find out what the standard is for your pump. And then you compare what you have calculated fo r your pump itself versus the standard, and you see whether you pass or fail.”

Summarizing, “In the end, it's a spreadsheet cal culation, even fairly simpler than the PER calculator, because there is only one equation that varies. So each pump, you can look at efficiency level 1, 2, 3, 4, 5, 6 and see where you pass and see where you fail for every pump.”

Returning from the mid-morning break, Dan Wein traub began by presenting an overview on the Engineering Analysis process, referring to a larg e flow chart (handout p.3, transcript p.83). The sequence is:

 Navigant and LBNL perform analysis, c onducting manufacturer interviews and doing independent industry research.

 Next the analysis considers design options, which is market and technology screening analysis.

 Then the analysis considers two separate f actors: available efficiency improvement and the cost of applying those available efficien cy improvements (also called design options) and determine how the design options would be used in the marketplace.

 Then determine the average incremental manuf acturer’s production cost (MPC), per unit

sold

 And also at this stage, find the aggregate conversion cost to industry

 On a parallel path, the analysis m odels MPC and baseline markups.6 Page | 6  Taking these analyses, you model in dustry market pricing and economics

 That enables you to find the average increm ental manufacturer’s selling price—an estimate of how much the price of a product wo uld go up to the first purchaser at a given efficiency level

A member commented that each company’s markups and other factors will be different. Dan indicated that the analys is tries to account for this, by in cluding, for example, both small and large manufacturers.

Market and Technology Assessment (handout p.4, p.89) Dan went through a list of potential technology options to improve efficiency, followed by a more detailed description, including:

 Improved surface finish

 Improved hydraulic design

 Reduced running clearances

 Reduced mechanical friction in seals

 Reduced volumetric loses (remova l of thrust balance holes)

Screening analysis is employed to evaluate the technology options based on the following

criteria:

 Technological feasibility

 Practicability to manufacture, instal l and service on a commercial scale

 Impacts on product utilit y or availability

 Impacts on health and safety.

This analysis resulted in the follo wing technologies being screened out:

 Reduced running clearances

 Reduced mechanical friction in seals

 Reduced volumetric losses

 Surface coating or plating

After generally confirmatory remarks, members commented that there are other factors that matter such as sustainability of efficiency gains, effective containment and overall safety.

After the analysis, the following design options we re ‘screened in’. These will be subject to further, more detailed analysis:

 Hydraulic redesign as a base

 Hydraulic redesigns with a ch ange to advanced casting techniques-including changes to investment, die or lost-foam casting and su rface finish improvement options—surface polishing of the impeller and/or volute.

 Impeller and/or volute geometry redesigned for higher efficiency.

 Hydraulic redesign to advanced casting techniques—the impelle r could also be cast using advanced techniques, which would give it an improved surface finish.

 Cast bronze and stainless steel impelle rs can be investment or die cast

 Surface finish improvement options: surf ace polishing of impellers or volute7 Page | 7 Engineering Analysis (p.101) The purpose of the engineering anal ysis is to determine the incremental changes in manufacturer selling price at each proposed efficiency level. This cost-efficiency re lationship is a key input for the following downstream analyses:

 Life-cycle cost and pa yback period analysis

 Manufacturer impact analysis

 Employment impact analysis

Dan continued to present on potential efficiency improvement areas, with a detailed description of hydraulic redesign options, leading to a desc ription of costs for hydraulic redesign up to MEI/PER 40 (handout p.18, p.108). Continuing, Da n referenced a Hydr aulics Institute study showing costs of redesign for 1 HP, 50HP and 200HP pumps. He stated th at the analysis team has a data base that now includes 50 percent of all pumps shipped, including the performance of those pumps. Utilizing these data, the team came up with estimates of the average unit cost for the redesign of different pump types.

Some of his conclusions: Hydraulic redesigns are not expected to im pact manufacturers’ production cost (MPC). Designs beyond the MEI-40 level will cost manufact urers more (design and test labor costs) to complete. For example, EU Lot 11 manufacturer s’ data indicated it would cost 1.6X more to design a pump model to MEI-80 versus MEI-50. Considering small manufacturers as well, the analysts arrived at 1.8X as the increased cost nu mber for the U.S. marketplace. He continued that the U.S. has many small manufacturers, and they would have a heav ier cost burden than their large manufacturer counterpa rts. (p.116). Responding to a quest ion, he explained that the cost of designing higher efficiency pumps is high er because the design effort is essentially an iterative process with design-test, and repeat design-test iterations, until the final efficient design.

A member confirmed what Dan was saying and contributed that as the efficiency gets higher the pathway to achieving it gets “l ess and less clear.”

Based on research and manufacturer interviews, th e analysts determined that advanced casting (pattern and tooling) costs 2.4X more, on aver age, than sand casting tooling, and advanced casting methods currently make up 60 % of the ma rket. Using the data from HI, and applying the anticipated cost increases, the team made estimates of the costs of advanced casting and tooling for 1, 50, and 200 HP pumps (handout p. 21).

Members questioned the cost estimates:

 Wouldn’t the labor costs be lower with adva nced castings? Answer: a manufacturer pays a lot more up front for these technologies, but once you have made that investment the costs per piece are the same.

 Another member reflected that the cost per pound or cost per the same casting would be higher for investment casting than sand in all cases. The analysts reflected that manufacturer surveys indicated “it was a wash” between di fferent casting methods. A

member contributed that c onsidering both the casing and the impeller, and looking at factors like labor, scrap rate, etc., “that when you combine those two, it’s almost a wash.”8 Page | 8  Continuing Dan stated that the team concluded that the cost of advanced casting tooling is 130 percent of what was quoted in the HI survey.

Costs: Hydraulic Redesign (HRD) with Cha nge to Advanced Casting (handout p.22, p.134)

Members asked for clarification on the cost da ta and Dan described how the figures were derived. Continuing, Dan conclude d that the average HRD cost for an end suction pump is $223,000 and the average cost for an inline pum p is $221, 000—both reflecting a 7% cost

increase.

Surface Polishing (handout p.23, p.137) Surface polishing was determined to cost approxim ately 45% of the finished impeller cost for End Suction and Inline pumps. Dan confirmed th at those were the average costs to redesign an average pump to MEI-40. Continuing, he restated that 60% of the market currently employs advanced casting techniques. An online contri butor asked if the analysts considered that advanced casting tends to be labor intensive a nd only cost-effective if sourced from low-cost countries. Dan replied that the research showed a majority of investment casting is done onshore “because the quality offshore is not there yet” , but confirmed that it is labor intensive.

Looking at costs, on average the shipment-weighted cost of the average pump out the door was estimated to be an increase in impeller cost of $46 for end suction pumps and $50 for inline pumps. The costs were based on survey data, re flecting what manufacturer s reported they would

do.

Summary of Engineering Costs (handout p.24, p.149) Dan displayed a chart which showed the model-we ighted average cost to move End Suction and Inline pumps from MEI-40 to MEI-70, with sp ecifics about hydraulic redesign cost and hydraulic redesign with investment casting.

Modeling Industry-wide Implemen tation of Design Options at E ach Efficiency Level (handout p.26, p.153) Dan described how the industry is arrayed and how these design options could be applied and what the cost of the design options would be across the industry. He described the following methodology:

 The engineering analysis will attempt to model the redesign choices that will be made by the industry when faced with va rious efficiency levels.

 A cost model will start with the total number of pumps failing at a given level.

 Assign design options to each failure based on ma rket data and direct industry research.

 Choose an efficiency level and analyze, one at a time—at each efficiency level, you have pumps that are failing an d pumps that are passing.

 Your output is an estimate of the number of models that are going to be dropped and not redesigned, the number of models that woul d be hydraulically redesigned, the number that would be hydraulically redesigned and changed to investment casting, the number of models that would be polished.

Dan described the primary assumptions which guided the redesign optio ns chosen (p.156). A manufacturer questioned the methodology, base d mostly on market realities, costs and9 Page | 9 customer/manufacturer’s needs. Another manufact urer agreed, cautioning especially about over reliance on polishing as a means to meet the effi ciency target. Another member agreed that polishing might be a short term answer while waiting for a redesign.

Dan continued, a primary assumption is that not every pump will be redesigned. This would be due to existing low sales volume, overlapping performance and multiple brands. Some pumps

will be substituted for others. Dan described the assumed failure rate: at PER-10, 60 % of the failing models would be dropped and not redesigned; at MEI (P ER)-40, an average of 40% of those pumps would not be redesigned—and that level of failure was consistent moving up

toward the MEI-70 level. Dan clarified that he was looking at the i ndustry as a whole.

Manufacturers commented that th e numbers seemed “extremely hi gh.” Manufacturers described the role of pumps that are loss leaders and the practical need to maintain a complete catalog of

pump types.

A member asked what percent of total sales wa s represented by the 60% of failing models. Dan responded that at PER-10, it is below 7% of sale s—the failing models are not a large percentage of sales and not a large percenta ge of models overall. A member contributed that “if Europe went to (MEI-)40 percent of the market standard, that a fair fraction of the existing market would fail...we’re trying to cut 40% of the least efficient...”

Dan presented a summary of the estimated resu lts (handout p.33, p.182). The total number of ESCC/ESFM models currently is 2,050. At PER- 10, 250 of those fail by definition. It's 250 models over those 2 equipment classes. If we 're saying 60 percent of the models are dropped, that's 123 dropped. Eighty-two models will re quire redesign. A manufacturer described the chart as “scary”, raising the possibi lity of some companies that might be concentrated in models that are failing and also the pr ospect of having products move o ffshore. Dan clarified the results model the industry as a whole. Lucas Adin added that the jobs impact is a part of a different analysis.

As a summary comment, a manufact urer said he and his industry counterparts had significant reservations about the estimates, “that 60 percent of the product w ould not be redesigned is kind of mindboggling to this group.” Another manufacturer agreed, st ating that the estimate was

counterintuitive because the i ndustry today “is always trying to reduce inventory, reduce the

number of model lines.” The di scussion turned to ways of ga thering more data, improving the data, interpreting the data and the timing of it all. Members complimented Dan on a very high quality presentation. Several members closed ou t the morning session with their views of the potential impacts to the pump i ndustry, especially for small manu facturers. The WG broke for

lunch.

Summary of Inputs for ESCC/E SFM and IL (handout p.32, p.211) Dan Weintraub provided the following overview:

 We have 2,050 models for end suction clos ed-couple and end suction frame-mounted (survey data).

 We looked at total shipments

 We scaled up our models by the same scale as our total shipments.10 Page | 10  If we had approximately 100,000 shipments, that 's approximately 2 times more shipments than what our data represented.

 Then we scaled up the number of models in our database by two (This number will change based on the new data that we're getting from HI)

Then he reviewed the data categories: % Models dropped at PER10, % Models dropped at PER40, % of Casting Investment/Die Cast, % of Castings Sand Cast, % of Castings switched to Investment/Die Cast, % of Models Fabricated Stainless Steel, % of Pumps Eligible to be Polished, % of Eligible Pumps Polished. Descri bing the results for ESCC and ESFM Pumps, he noted that very few models are polished at PE R10 or even PER25 through PER70. The bulk of the redesign activity to meet new efficiency le vels will be hydraulic redesign only and limited number of additional models utilizing hydraulic re design with changes to advanced casting. He continued, describing Inline pumps with similar results: very few models are polished; the bulk of them are hydraulically redesigned.

Next he reviewed shipments-weighted results for ESCC/ESFM at each of the different efficiency levels, starting with projected number of shipment s failing, then percentage of total shipments failing, the percentage of failing shipments polished and the total number of shipments polished. A few results: at PER10, 7 percent of total ship ments fail. Ten percen t of the bottom models represent seven percent of shipments. For Inline pumps, 3.2 percent of the models are polished.

Average Incremental MPC Per Unit Sold (handout p.37, p.220) Dan continued, the incremental MPC per unit sold is , effectively, what the ch ange of cost is due to polishing across the industry. The methodology is, for each equipment class and efficiency level, the industry shipments-weighted average cost to polish an impeller is multiplied by the number of shipments that will feature a polishe d impeller. This creates the total aggregate incremental cost for the industry. Divide that by the total number of failing shipments which results in the average incremental MPC per unit sold.

Earlier the analysts described this cost as abou t $45 with about 400 to 60 0 units that would need polishing. Multiply the cost per unit times total units, take the result and divide it by the number of failing shipments. The result is, on averag e, less than $2. If you are looking at an industryweighted average, it ends up being an average in crease of less than one-half of one percent—.2 or .3 percent. The conclusion: this is a small cost to the industry as a whole because there are very few units being polished.

Aggregate Industry Conversion Cost (handout p.41, p.221) For each equipment class and efficiency level, the adjusted industry average redesign costs are multiplied by the number of models requiring each redesign. This creates an aggregate conversion cost for the industry—t he costs per model to hydraulic ally redesign. Multiply that times the number of models that are going to be hydraulically redesigned and the result is the aggregate cost for the industry—a bottom-up approach to ascertai n how much it is going to cost the industry as a whole to meet an efficiency level.

Accounting for Redesign Cost Sharing Between Shared Model Platforms (handout p.42, p.223)11 Page | 11 Because ESCC/ESFM and 2/4-Pole pump models share significant hydraulics and hardware, the team did not expect every model in the database to incur the cost of a fu ll hydraulic redesign. To account for these shared costs we quantified:

 Statistics on shared platforms—number of hydraulically identical ESCC/ESFM pump models and number of 2-and 4-pole pumps sharing the same model name

 Allocation of shared redesign costs

Utilizing the database, and looking at hydraulic performance, the team differentiated those pumps with ‘unique’ hydraulic ch aracteristics and those that were ‘duplicates’ of other pumps.

To determine the allocation of shared redesi gn costs we assumed that ‘unique’ pumps were always going to bear the full co st of redesign. Accordingly, we assumed that ‘duplicate’ pumps would incur some percentage of the redesign co sts of the ‘unique’ pumps, not the full cost.

Next we took the principal cost categories in a redesign—redesign, prot otype & initial test; pattern, tooling; testing; and, ma rketing—and estimated what share of the full cost would be born for ‘duplicate’ pumps for each principal cost category (handout p.43). The result: the total percent of original redesign co st attributed to the ‘duplicat e’ model for ESCC/ESFM was 59 percent (weighted average by cost category); for 2/4 pole speed pumps the weighted average was 68%. Members questioned some of the cost assu mptions/allocations, asserting that the testing effort would be greater.

Determining the Per-Model Cost Adjustment: ESCC/ESFM (handout p.44, p.230) This methodology is to address the overlap betw een pumps that are end suction closed-coupled, two-pole and four-pole. Starting with the number of failing models at each efficiency level, you can separate unique models and duplicate models. Then determine the percentage of unique models that have a unique 2/4 pole design vers us those with a duplicate 2/4 pole design. Multiply those percentages to obtain the populat ion having the cost of a unique closedcouple/frame mounted design and a unique speed de sign. Dan described a similar calculation for duplicate models.

Continuing, he showed the population of pumps that fall into each category. And there is cost sharing among the categories. Dan continued, “your first bucket is unique model costs, unique models, 100 percent. So they get 100 percent of the cost. Your ne xt bucket is models that have duplicate speed only. That's 68 percent of the cost . The next one is duplicate type only. It's 59 percent of the cost. And then you get to the pumps that are double duplicates. And here I simply multiplied 68 percent by 59 percent to get 40 percent and applied those to a small percentage that are representing duplicates on both speed and type. You take the sum of the product, so multiply this and multiply this and multiply this. You add them up. You get a weighted average. And right now it's 75 percent. That will go up a littl e bit with the adjustments. But what that 75 percent means is that you can say that of a ll the models that are going to be redesigned, you apply 75 percent of the cost that we had discus sed earlier or you could take 75 percent of the models times a full cost. It will get you the sa me thing. But it's to account for the sharing in costs between similar architectures (p.232)

. ” Dan presented a similar methodology for Inline pumps (handout p.45).12 Page | 12 A member mentioned that a manufacturer might to do a redesign for reasons other than efficiency gain. Continuing, he indicated that all this content was a lot to process; and, the presentation format made it seem like ‘one-w ay’ communication. He wanted some assurance

that manufacturers would have the opportunity to provide feedback. Lucas Adin indicated that was exactly what the analysis team hoped to achieve.

Aggregate Industry Conversion Cost (handout p.46, p.246) Dan provided an overview: we determined the co st per model to hydraulically redesign. Then we came up with cost-sharing factors, that will give us the adjusted costs. The results: for end suction, its 75 percent of the orig inal cost. For Inline, its 94 per cent. We determined the number of models that are hydraulically redesigned. You multiply those out to obtain the aggregate conversion costs to the industry as a whole.

Dan presented two charts (handout p.47), one of which showed total conversion costs to the industry by pump type and effici ency level; another showed the total conversion costs as a percentage of revenue by efficiency level.

Summary of Preceding Slide Pr esentation (handout p.48, p.252) Dan concluded this segment with a summary:

 The proceeding analysis clearly indicated that the conversion costs significantly outweigh any of those costs associated with polishing pumps

 As such, those polishing costs are not going to impact the analysis as it stands.

 Only hydraulic redesign costs will be passed on to the LCC and downstream analysis.

Market-Based Approach to Modeling the Ba se Case MPC, MSP and Cost-Efficiency Relationship (handout p.50, p.254) Presenting, Dan continued, that the a pproach is to use market-based data to model the base case. He clarified that the analysis team was us ing source data obtained directly from the

manufacturers and described the data elements (handout p.51). Key points:

 In order to model the MSP ove r the full range of products o ffered by all manufacturers, a scaling parameter must be chosen.

 The efficiency relationship has already been determined to be a factor of flow and specific speed, so it makes sense to work with these parameters

 To reduce complexity, normalizing factor s were chosen: specific speed/ flow ( Ns/Q ) and motor speed base RPM of 1800.

 Taking the log of this factor and shifting it by one unit on the X-axis allows for easy power series regression ( log[(Ns/Q x (n/1800] + 1 ) (handout p.52).

You model the pump cost without the motor, as follows (handout p.55):

 Calculate the per-unit manufacturer selling pr ice for each model and divide total revenues by total units. Then estimate the actual motor cost for each model in the data base. The analysts use manufacturer-specific cost curves for each to estimate the actual motor cost. This is compared to the data we coll ected in the manufacturer interviews.

 To create an adjusted motor cost we consid er account markup and the percent of pumps not sold with motors. Multiply baseline motor cost by manufacturer-specific markup.13 Page | 13 Multiply marked-up motor cost by manufacturer-specific percent of shipments sold with motors, to account for some pumps not being sold with motors.

 Find the pump-only MSP by subtracting the adju sted motor cost from the per-unit MSP. Average the pump-only over discrete ra nges of the scaling parameter.

 Regress on these average pump-only MSP in each range

Dan continued describing the results of the mode led pump costs without the motor. “Inline MSP model results, two and four-pole were evaluated together in one population because we needed to keep the population of data points larger. They should be fairly similar in their costs. And the scaling factor corrects to repr esent physical size....and the popul ation average for all pumps was $1,383 (referring to handout p.58). Pu mp-only MSP, average cost per model, vertical inline. Here you have your scaling factor, your sec ondary axis, .5 horsepower, 2.2 horsepower, 13 horsepower, 75 horsepower, 180 horsepower. Th is 75 horsepower is about $2,000 before a motor. This 2.2 is about $900 before a motor. Y ou can see the curve. You can fit regression to it pretty strongly.”

Evaluating the Effectiveness of the Model: Inli ne Results Pump without Motor (handout p.59) We can evaluate the performance of the MSP model by seeing how well the model predicts MSP, on average, for all 287 models that had ship ments. The results show an average percent

error for all models was .5% a nd the average actual cost error was $12. Dan clarified that the team had 287 models in the cost model—pumps w ith shipments. The model, using a scatterplot, then visually re-cre ated the sample manufacturer per-unit MSP data.

Dan then described the same methodology a pplied to end-suction pumps (handout p.62). One additional conclusion from the data was that the manufacturer’s production cost really does not change appreciably with effi ciency. A member, offering an additional interpretation said, “given the current state of the market,... [the market] may not value a difference between an 82 percent pump and an 84 percent pum p in certain applications.”

Baseline Cost-Efficiency Relationship (handout p.65) Based on industry research, th e analysis team has found:

 MPC does not change appreciably with efficien cy; hydraulic design is the prime factor in determining a pump’s efficien cy; hydraulic design does not appreciably affect the

material and labor cost

 For individual manufacturers, MSP does not change with efficiency—they do not carry tiered product lines or target higher markups for specific higher efficiency models

 Many other design factors sign ificantly influence MPC and MSP—durability, reliability,

etc.

 A cost-efficiency relationship may exist in th e overall market if a manufacturer’s pricing

correlates to their relative efficiency in the market

Finding and Applying the Baseline Cost-Effi ciency Relationship (handout p.66). The cost model developed on the previous slid es represented the average per-model MSP of a pump at a given log. We can evaluate each pump to see how much more or less than the average

it costs. We can then look to see if there is a relationship between an MSP premium and14 Page | 14 efficiency. Efficiency is represented by a pum p’s failing PER C-value. As a result, we can group shipments by C-value ranges (efficiency ) and see how the price premium varies.

Dan displayed two graphs showing the results for Inline Pumps (handout p.68). The graphs displayed a cost premium ranging from 10 perc ent to -30 percent. The conclusions:

 For the really inefficient pumps, their cost was much lower than the median

 Moving to a mid-range of effici encies, the prices flatten out

 There was not much of price prem ium at higher efficiencies (p.276)

 General conclusion, there is a very weak cost-efficiency relationship

Several members commented on the conclusions:

 these are very competitive markets and the market does not value efficiency—even though there has been industry consolidation

 “getting pricing in this market is extremely difficult;”

 conversion costs can be high and industry needs some way to recoup those conversion costs in a timely way.

A member reminded the WG that these results were the reason to do standards, “we have learned that customers probably won't pa y extra and aren't interested in a few additional points of efficiency. Manufacturers, because of the investment required, probably aren't going to voluntarily change their product lines to get a few additional points of efficiency. Yet, there's a public good associated with the energy savings th at would result from that improvement. Yes, recovering the cost of this conversion is subjec t to competitive forces, but if everybody in the industry has to incur those costs, then it se ems reasonable that competition would support the commensurate increase because everyone is faced with the same circumstance.”

ESCC/ECFM Costs Versus Efficiency (handout p.71)

Dan stated that End Suction available data were not suitable for the previous cost-efficiency analysis. The Inline pump cost-efficiency resu lts were mapped to the end suction population— they are similar in constructi on and market & pricing dynamics should be similar. Expecting that the curve shapes would be the same, the team found through C-value comparisons that end suction pumps on average are more effi cient. Summarizing (handout p.74):

 The bottom 20-30% of models show a strong MSP versus efficiency relationship, with less efficient models costing less

 Beyond this, the cost-efficiency relationship is flat, with more efficient pumps costing no more than less efficient pumps

 MPC is independent of efficiency: in the st andards case, the new markups will be applied

to an MPC model that is identical to th e baseline model that was just derived—this creates the cost-efficiency relationship for the standards case.

 Because the standards case will rely on changes in markups rather than changes in MPC, the markups in the base case wi ll be different from the mark ups in the standards case. This differs from the usual rulemaking process, but is necessary give n the structure of the pump industry.

Pricing and Markups (handout p.76, p.297)15 Page | 15 Returning from its afternoon break, the WG began on pricing and markups. Chris Lau presented the standards case’s basic premise: that it is lik ely that after standards go into place, MSPs will change—and that will depend on manufacturer’s c onversion costs and manufacturer’s ability to pass on costs through their sales chains. He clar ified that MSP is MPC times the manufacturer markup. The analysis will determine manufactur er markup scenarios that reflect the industry’s ability to pass on the conversion cost s. Markup is MSP divided by MPC.

The process is to establish two scenarios, a lower bound and an upper bound. For the lower bound it would be something that is a minimal cost recovery. It will reflect a manufacturer's inability to raise prices due to market factors. And it would result in sort of minimal change in end user pricing. At the upper bound, what we w ould like to see is something that actually represents higher cost recovery, reflects an incr easing ability for manufacturers to pass on costs and increase their selling price. And it would likely be whatever re presents the highest change in end-user pricing.

We might call the lower bound minimu m cost recovery or flat markup. In other words, -- and this is very low -- it would be whatever you are selling it today, that's wh at you sell at after the standard. That indicates you have no ability to pass on costs to your customers. At the upper bound, we don't know where we're going to go yet. We have heard two possible options to date. One is that manufacturers when they upgrade eq uipment, when they upgrade designs, when they do these redesigns, they spread out the costs over all of their existing mo dels so that no single model increases dramatically in pric e. We don't know if that is real istic. We would love to hear feedback on it. The other option is the conversion costs recovered over just the redesigned units. So if you have 20 models out of 50 that get re designed, then those 20 models would see some sort of increase in markup and a re sultant increase in selling price.

A manufacturer commented that “the marketplace is not going to let you do that. I mean, if you try to recover all that cost on that model, then you won't sell any because your competitor is just not going to let you do that.” He continued, “we’re going to be lucky to hit your lower bound.”

Another manufacturer described several features that make the pumps marketplace extremely competitive.

Chris continued, the key drivers ar e MPC, conversion costs, baseli ne markups and baseline MSP.

We consider the total convers ion costs, the annual payment and the additional revenue the industry will have to make to recover that convers ion cost. We treat this as annuity payments. We figure out what that annual amount is. We di vide that by annual ship ments to figure out how much they're going to have to increase the cost per unit per year. And we add that additional

cost to the base case MSP. So baseline MSP plus the increased cost divided by MPC is your revised markup. These are to say, how much more are you going to have to charge your customers to make your conversion costs back?

He described the estimated industry averag e baseline markup (handout p.82) and upper bound scenarios (handout p.83), noting that standards ma rkup increases as the PER increases because conversion costs are going up. The chart also showed the new projected MSP and percent increase. Responding to a question, Chris said the time period in the analysis to recover the conversion costs for the industry as a whole was 30 years.16 Page | 16 A manufacturer remarked that he had been in the business 40 years and had never seen a 12 percent price increase in the span of that 40 years. Another manufacturer inquired about the practicalities when, for example, the investment in new tooling would only last 10 years. Another manufacturer questioned the overall expense/conversion costs when most companies are looking for a two-year payback on investments. There was a lengthy back and forth exchange among several members related to the limits on pricing and cost recovery.

Life Cycle Cost Analysis (LCC) (handout p.85, p.321) Alison Williams began by referencing a specific LCC s cenario to illustrate some early results, as

follows:

 Industry recovered 100% of the required conv ersion cost over 30 ye ars with a discount

rate of 10.15%

 This results in the annual value of additional revenue that must be brought in. This value is distributed across shipments of pump s that failed to meet the standard

 A percentage increase is applied to the ba se MSP for each shipment of failed model.

 Results: both Inline and End Suction showed percentage increases from PER-10 through PER-85 ranging from 12% to 33%

Katie Coughlin began presenting on LCC with ma rkups on MSP (p.324). The baseline markup is the markup on the baseline unit full price. A nd the incremental markup is the markup on the change in price that is due to the standard. The analysis tr ies to identify the distribution channels, figure out how the various parties make their profit in th at business, and assemble that incremental markup. She descri bed four distribution channels :

 From the OEM to the distributor and then to the end user, which is the bulk of the shipments

 OEM to OEM to end user, with an intermed iary manufacturing step where the pump goes into something that someone sells

 Direct to end user, onl y a couple of percent

 OEM to contractors, also a rela tively small part of the market.

Responding to a request for information, a manufactur er added that a contractor is frequently

hired to do installation. A member suggested it might be productive to consider differences or a potential split between the new pumps and the replacement market.

Continuing, Katie described the t eam’s preliminary figures for baseline markups as 1.5 and incremental markups as 1.24.

Energy Use Calculation (p.335) The energy use calculation is an attempt to understand the way produc ts are used in the field—to try to get a good estimate of what the actual valu e of the energy savings might be to the pump user. This means trying to characterize the opera ting conditions and repr esent the actual energy use, in a somewhat simplified manner, so that we can come up with a reasonable estimate of the benefit side of an efficiency standard. The act ual calculation is to take the pump shaft power, theoretically at each hour, and just calculat e the energy input—multiply by hours per year, and then that gives you annual energy consumption. We are including motor losses in the energy17 Page | 17 calculation, because this is to be consistent w ith the consumer perspective. They're paying electricity for the whole setup. And we're usi ng in this calculation the methodology outlined in the test procedure. And in general, as the te st procedure evolves, the energy use calculation is very likely to continue to try to be consistent with the test procedure.

Continuing, we have very limited information on load profiles. As a result, we have created a kind of average annual load profile based on perc entiles—the fraction of time while the unit is running that expands at a given load point. And we're only using 4 load points currently: 50 percent, 75 percent, 100 percen t, and 110 percent of the nominal duty point. So we have an hours per year figure at each load point. The power is the pump power at that load point. And then we are adding in the motor losses into the ov erall energy consumption. At this point we're not considering that variable loads would be met w ith a variable speed drive. We're just looking at throttling. So everything is calculated on the pump curve. And we will do a subgroup analysis for those consumers that are using variab le speed drives to see if that would severely impact their energy savings.

A member asked about accounting for mis-sized pumps. Katie described how a ‘BEP offset’ calculation accounts for this (p.338). She also mentioned that, for now, the analysts were ignoring impeller trimming. A memb er commented that around one -half of pumps have their impellers trimmed, so some adjustment is nece ssary. Another member contributed that the analysis should find a way to consider power factor . Katie noted the need to describe the actual distribution of pump duty points an d cited the team’s data sources . The team uses manufacturer shipment data to determine the actual distributi on of pump sizes to compensate for deficiencies

in two of the data sources.

Katie also described the scenario-type methodology used to compensate for the lack of load profiles (p.350). A member commented that the load profiles should reflect the different rate schedules and use profiles as s een in different uses between the commercial and industrial sectors. Regarding operating hours, Katie desc ribed a consultant report which provides a distribution of operating hours by application. Summarizing, th e energy use segment she said “once you've got operating hours, you have got a duty point, you have got a pump curve, and you have got this offset that tells you how far away you are from BEP, you just plug in this equation for energy use for the pump....flow times head divided by efficiency. And that gives you the annual energy consumption.”

A member commented that “...as far as where th e equipment tends to operate relative to duty point, I think it's fairly well-known that pumps gene rally operate to the left of the BEP point, the duty point, as opposed to beyond the BEP point...or duty point.”

At the close of Day 1, the WG raised issues to be discussed on Day 2. Regarding metrics, Lucas Adin referenced criteria, presen ted previously, that DOE uses to assess whether a particular metric is appropriate. Sarah Widder, summarizing, said “I think there are two main issues. Do we capture the performance of motors and contro ls or do we just stick to the pump, bare shaft pump, and do we weight the load points or do we analyze them and co mpare them individually against some standard? Al Hube r stated that his caucus needed to understand if “you have to have one metric?” Continuing, he stated “wha t we had in mind is one metric for the pump,18 Page | 18 which is basically the MEI/PER, whatever you what to call it. I mean, we're very close on that, whether you average the three or whether you do the other....they call that fixed load.” He proposed additional refinements for both the nume rator and the denominator, reiterated their desire for two metrics and keeping th e same as the European construct.

Lucas and the analysis team described topics for Day 2, including the LCC analysis and continuing to zero-in on the metric. The facilita tor raised the issue of the outstanding workload compared to time scheduled to complete the wo rk and queued that for discussion on Day 2. On the subject of making progress, a member stated th at “once the LCC analysis results are laid side by side with the manufacturer impact, then it's ti me for us to get together and talk because no amount of analysis is going to fi gure out what the actual forecast of either of those is going to be long-term.” Alison stated that the analysis team hoped, in addition to having revised LCC analysis, to have the shipments national impact analysis and manufacturer impact analysis (MIA) done by the WG’s May meeting.

Al Huber added that the manuf acturers caucus “totally disagree d” with some the assumptions presented in the engineering anal ysis. He wanted to go back through and discuss them. Lucas agreed that was a very high prio rity. Day 1 recessed at 5PM.