Manufacturer Impact Analysis 

C&
2

Goals Present the updated INPV results for the Commercial & Industr

industry

 Review the cash flow model used to arrive at the industry net p

value (INPV) results

 Answer questions about interpreting results
3

What is the Manufacturer Impact Analysis The Manufacturer Impact Analysis (MIA) is the portion of the r

where DOE assesses the impact of standards on manufacturers

Market & Technology

ScreeningAnalysis

EngineeringAnalysis

Energy Use & End Use LoadCharacterization

ShipmentsAnalysis

Markups forEquipmentPriceDetermination

Life-CycleCost andPayback Period Analysis
4

What is the Manufacturer Impact Analysis The Manufacturer Impact Analysis (MIA) is the portion of the r

where DOE assesses the impact of standards on manufacturers

Market & Technology

ScreeningAnalysis

EngineeringAnalysis

Energy Use & End Use LoadCharacterization

ShipmentsAnalysis

Markups forEquipmentPriceDetermination

Life-CycleCost andPayback Period Analysis

MIA uses inputs from multiple

upstream analyses
5

Government Regulatory Impact Model (GRIM) To better understand the impact of standards on manufacturer

the Government Regulatory Impact Model (GRIM), a discounte

model

 The primary output is Industry Net Present Value (INPV), used 

succinctly quantify industry value

 By comparing the base case INVP to the standards case INPV, D

to estimate impacts to manufacturers

 DOE models two different markup scenarios to establish upper 

bounds for the Pumps analysis:

• Flat markup (flat pricing)• Cost Recovery (full recovery of conversion costs)
6

 Start here....GRIM: Government Regulatory Impact Model

Industry Income Statement ($M) 2013 2014 2015 2016 2017 

Revenues $ 295.7 $ 302.6 $ 312.5 $ 321.0 $ 327.0 Total Shipments (million units) 0.377 0.385 0.398 0.409 0.417 

- Materials $ 142.6 $ 146.0 $ 150.7 $ 154.8 $ 157.8 - Labor $ 38.9 $ 39.8 $ 41.1 $ 42.2 $ 43.0 - Depreciation $ 7.7 $ 7.9 $ 8.1 $ 8.3 $ 8.5 - Overhead $ 26.9 $ 27.5 $ 28.4 $ 29.2 $ 29.7 - Standard SG&A $ 63.9 $ 65.4 $ 67.5 $ 69.3 $ 70.6 - R&D $ 4.7 $ 4.8 $ 5.0 $ 5.1 $ 5.2 - Product Conversion Costs $ - $ - $ - $ - $ - - Stranded Assets $ - $ - $ - $ - $ - 

Earnings Before Interest and Taxes (EBIT) $ 11.0 $ 11.2 $ 11.6 $ 11.9 $ 12.1 

Per Unit EBIT ($/unit) $ 29.09 $ 29.09 $ 29.09 $ 29.09 $ 29.09 

EBIT/Revenues (%) 3.7% 3.7% 3.7% 3.7% 3.7% 

- Taxes $ 3.0 $ 3.1 $ 3.2 $ 3.3 $ 3.3 

Net Operating Profit after Taxes (NOPAT) $ 8.0 $ 8.1 $ 8.4 $ 8.6 $ 8.8 

Cash Flow Statement 

NOPAT $ 8.0 $ 8.1 $ 8.4 $ 8.6 $ 8.8 

+ Depreciation $ 7.7 $ 7.9 $ 8.1 $ 8.3 $ 8.5 + Loss on Disposal of Stranded Assets $ - $ - $ - $ - $ - - Change in Working Capital $ - $ 1.3 $ 1.8 $ 1.6 $ 1.1 

Cash Flows from Operations $ 15.6 $ 14.7 $ 14.7 $ 15.4 $ 16.2 

- Ordinary Capital Expenditures $ 8.0 $ 8.2 $ 8.4 $ 8.7 $ 8.8 - Capital Conversion Costs $ - $ - $ - $ - $ - 

Free Cash Flow $ 7.7 $ 6.5 $ 6.3 $ 6.7 $ 7.3 

Discounted Cash Flow

Free Cash Flow $ 7.7 $ 6.5 $ 6.3 $ 6.7 $ 7.3 Terminal Value $ - $ - $ - $ - $ - Present Value Factor 0.000 1.000 0.894 0.800 0.716 Discounted Cash Flow $ - $ 6.5 $ 5.6 $ 5.4 $ 5.3 

INPV at Baseline $ 75.9 
7

 ...to get here...GRIM: Results

$75.9 $66.0

$32.8

‐$29.5

‐$138.4

$75.9 $90.3 $88.8 $72.9

$47.1

‐$350.0‐$300.0‐$250.0‐$200.0‐$150.0‐$100.0

‐$50.0

$0.0

$50.0

$100.0$150.0$200.0

PER 10 PER 25 PER 40 PER 55 

Industry Net Present Value (INPV)

INPV ($M) vs PER

Flat Markup INPV Cost Recovery INPV
8

 ...and here...GRIM: Results

0.0%

‐13.0%

‐56.8%

19.0% 17.0%

‐160.00%‐140.00%‐120.00%‐100.00%

‐80.00%‐60.00%‐40.00%‐20.00%

0.00%

20.00%40.00%

PER 10 PER 25 

% Change in INPV

% Change in INPV

Flat Markup INPV Cost Recovery INPV
9

Key Inputs to GRIM:

 Manufacturer Selling Price (MSP)

 Manufacturer Production Cost (MPC)

 Shipments

 Financial Metrics Conversion Costs Markups

GRIM: Key Inputs
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MSP = Selling price to manufacturer’s first custo

 Based on HI survey data and DOE database data, presented on 

 Updated since 5/28. Now uses revenues that include motor co

 MSP is based on “Average Shipment Price (With Weighted Mot

Manufacturer Selling Price

Average MSP (Base Case) ESCC + EFCM IL 

Average Shipment Price(Without Motor) $639.18 $968.88 

% of units shipped with motors 70% 95% Average Shipment Price (With Weighted Motor Price) $826.36 $1,391.26 
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MPC = Cost to Produce One Unit

 MSP = MPC x markup

 MPC = MSP / markup

 The base case markup is based on manufacturer surveys condu

Navigant

Manufacturer Production Cost

Average MPC (Base Case) ESCC ESFM IL 

Base Case MSP $826.36 $826.37 $1,391.26 

Base Case Markup 1.35 1.33 1.44 

MPC $612.12 $621.33 $966.15 
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Units Shipped per Year (millions)

 Based on ~420k units shipped in 2013

 MIA uses the shipments values developed by LBNL and present

Industry Shipments

(millions) 2012 2013 2014 Distributio

ESCC 0.171 0.175 0.179 46%

ESFM 0.044 0.045 0.046 12%

IL 0.050 0.051 0.053 14%

VT‐S 0.104 0.106 0.109 28%

Total 0.370* 0.377 0.386 100%

* RS‐V units make up the remaining 50k units to total 420k units per year.

However, RS‐V equipment is not included in the analysis at this time.
13

Financial Metrics Used in GRIM

Tax Rate 27.4%

Discount Rate for NPV (real) 11.8%

Working Capital 18.6% % of revenue

Net Property, Plant & Equipment 16.0% % of revenue

Standard SG&A 21.6% % of revenue

Research and Development 1.6% % of revenue

Depreciation 2.6% % of revenue

Capital Expenditures 2.7% % of revenue

Financial Metrics

 Derived from SEC filings and refined based on manufacturer f
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Total Industry Conversion Costs

 Conversion Costs are upfront investments necessitated by a s

 Derived from HI Survey data, as presented on 5/14

Conversion Costs

($MM) ESCC ESFM IL VT‐S

PER 10 $9.73 $2.50 $4.97 $2.52PER 25 $38.70 $9.94 $19.67 $9.33

PER 40 $86.68 $22.26 $44.57 $19.15

PER 55 $164.93 $42.37 $86.82 $37.80PER 70 $270.23 $69.41 $141.70 $61.30
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Conversion Cost Breakdown

 Capital Conversion Costs: one‐time investments in plant, prope

equipment necessitated by a standard. Includes patterns and t

 Product Conversion Costs: one‐time non‐capital costs necessar

products into compliance with a standard. Includes related res

product development, testing, and marketing updates.

 Total conversion cost breakdown, based on HI data and engine

analysis

Conversion Costs

Product Conversion 69%

Capital Conversion 31%
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Manufacturer Markup ScenariosChange in manufacturer markup reflects the industry’s ability to in

prices to recover conversion cost investments Lower Bound: Flat Markup

• Minimal cost recovery

• Manufacturers are not able to raise prices due to market factors

• No change in end‐user pricing

 Upper Bound: Cost Recovery Markup

• High cost recovery

• Manufacturers are able to increase MSP on failing units to recove

costs

• Increase in end‐user pricing

Pricing & Markups
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Standards Case Markups

 Flat Markup assumes no change in MSP

 Cost Recovery Markup assumes ability to recover all conversion 

the analysis period with discounting

Markups

Flat Markup Cost Recovery Markup

Base Case PER 10 PER 25 PER 40 PER 55 

ESCC 1.35 1.56 1.77 1.82 2.11 

ESFM 1.33 1.56 1.56 1.62 1.73 

IL 1.44 1.54 1.65 1.81 2.03 

VT‐S 1.35 1.35 1.35 1.35 1.36 

Simple Payback Period (based on revenue)

Base Case PER 10 PER 25 PER 40 PER 55 

Years 0 4678

 Simple payback period for the industry using the Cost Recovery 
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 GRIM is an industry valuation modelGRIM: Government Regulatory Impact Model

Industry Income Statement ($M) 2013 2014 2015 2016 2017 

Revenues $ 295.7 $ 302.6 $ 312.5 $ 321.0 $ 327.0 Total Shipments (million units) 0.377 0.385 0.398 0.409 0.417 

- Materials $ 142.6 $ 146.0 $ 150.7 $ 154.8 $ 157.8 - Labor $ 38.9 $ 39.8 $ 41.1 $ 42.2 $ 43.0 - Depreciation $ 7.7 $ 7.9 $ 8.1 $ 8.3 $ 8.5 - Overhead $ 26.9 $ 27.5 $ 28.4 $ 29.2 $ 29.7 - Standard SG&A $ 63.9 $ 65.4 $ 67.5 $ 69.3 $ 70.6 - R&D $ 4.7 $ 4.8 $ 5.0 $ 5.1 $ 5.2 - Product Conversion Costs $ - $ - $ - $ - $ - - Stranded Assets $ - $ - $ - $ - $ - 

Earnings Before Interest and Taxes (EBIT) $ 11.0 $ 11.2 $ 11.6 $ 11.9 $ 12.1 

Per Unit EBIT ($/unit) $ 29.09 $ 29.09 $ 29.09 $ 29.09 $ 29.09 

EBIT/Revenues (%) 3.7% 3.7% 3.7% 3.7% 3.7% 

- Taxes $ 3.0 $ 3.1 $ 3.2 $ 3.3 $ 3.3 

Net Operating Profit after Taxes (NOPAT) $ 8.0 $ 8.1 $ 8.4 $ 8.6 $ 8.8 

Cash Flow Statement 

NOPAT $ 8.0 $ 8.1 $ 8.4 $ 8.6 $ 8.8 

+ Depreciation $ 7.7 $ 7.9 $ 8.1 $ 8.3 $ 8.5 + Loss on Disposal of Stranded Assets $ - $ - $ - $ - $ - - Change in Working Capital $ - $ 1.3 $ 1.8 $ 1.6 $ 1.1 

Cash Flows from Operations $ 15.6 $ 14.7 $ 14.7 $ 15.4 $ 16.2 

- Ordinary Capital Expenditures $ 8.0 $ 8.2 $ 8.4 $ 8.7 $ 8.8 - Capital Conversion Costs $ - $ - $ - $ - $ - 

Free Cash Flow $ 7.7 $ 6.5 $ 6.3 $ 6.7 $ 7.3 

Discounted Cash Flow

Free Cash Flow $ 7.7 $ 6.5 $ 6.3 $ 6.7 $ 7.3 Terminal Value $ - $ - $ - $ - $ - Present Value Factor 0.000 1.000 0.894 0.800 0.716 Discounted Cash Flow $ - $ 6.5 $ 5.6 $ 5.4 $ 5.3 

INPV at Baseline $ 75.9 
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Industry Income Statement

Industry Income Statement (in 2013$ millions)

RevenuesTotal Shipments (million units)

- Materials- Labor- Depreciation- Overhead- Standard SG&A- R&D- Product Conversion Costs- Stranded Assets

Earnings Before Interest and Taxes (EBIT)- TaxesNet Operating Profit after Taxes (NOPAT)

Cash Flow Statement 

NOPAT

+ Depreciation+ Loss on Disposal of Stranded Assets- Change in Working Capital

Cash Flows from Operations

- Ordinary Capital Expenditures- Capital Conversion Costs

Free Cash Flow

Discounted Cash Flow

Free Cash FlowTerminal ValuePresent Value FactorDiscounted Cash Flow

INPV at Baseline $

MPCOperating Expenses, based on financial metric

Conversion Costs

Shipments x MSP for each class of pump

based on financial metrics and EBIT
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Industry Cash Flow Statement

Industry Income Statement (in 2013$ millions)

RevenuesTotal Shipments (million units)

- Materials- Labor- Depreciation- Overhead- Standard SG&A- R&D- Product Conversion Costs- Stranded Assets

Earnings Before Interest and Taxes (EBIT)- TaxesNet Operating Profit after Taxes (NOPAT)

Cash Flow Statement 

NOPAT

+ Depreciation+ Loss on Disposal of Stranded Assets- Change in Working Capital

Cash Flows from Operations

- Ordinary Capital Expenditures- Capital Conversion Costs

Free Cash Flow

Discounted Cash Flow

Free Cash FlowTerminal ValuePresent Value FactorDiscounted Cash Flow

INPV at Baseline $

Add back non‐cash items

From income s

Subtract increases in capex and working 
21

Industry Cash Flow Statement

Industry Income Statement (in 2013$ millions)

RevenuesTotal Shipments (million units)

- Materials- Labor- Depreciation- Overhead- Standard SG&A- R&D- Product Conversion Costs- Stranded Assets

Earnings Before Interest and Taxes (EBIT)- TaxesNet Operating Profit after Taxes (NOPAT)

Cash Flow Statement 

NOPAT

+ Depreciation+ Loss on Disposal of Stranded Assets- Change in Working Capital

Cash Flows from Operations

- Ordinary Capital Expenditures- Capital Conversion Costs

Free Cash Flow

Discounted Cash Flow

Free Cash FlowTerminal ValuePresent Value FactorDiscounted Cash Flow

INPV at Baseline $

From cash flow state

Based on the discount rate
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 GRIM is an industry valuation modelGRIM: Government Regulatory Impact Model

Industry Income Statement ($M) 2013 2014 2015 2016 2017 

Revenues $ 295.7 $ 302.6 $ 312.5 $ 321.0 $ 327.0 Total Shipments (million units) 0.377 0.385 0.398 0.409 0.417 

- Materials $ 142.6 $ 146.0 $ 150.7 $ 154.8 $ 157.8 - Labor $ 38.9 $ 39.8 $ 41.1 $ 42.2 $ 43.0 - Depreciation $ 7.7 $ 7.9 $ 8.1 $ 8.3 $ 8.5 - Overhead $ 26.9 $ 27.5 $ 28.4 $ 29.2 $ 29.7 - Standard SG&A $ 63.9 $ 65.4 $ 67.5 $ 69.3 $ 70.6 - R&D $ 4.7 $ 4.8 $ 5.0 $ 5.1 $ 5.2 - Product Conversion Costs $ - $ - $ - $ - $ - - Stranded Assets $ - $ - $ - $ - $ - 

Earnings Before Interest and Taxes (EBIT) $ 11.0 $ 11.2 $ 11.6 $ 11.9 $ 12.1 

Per Unit EBIT ($/unit) $ 29.09 $ 29.09 $ 29.09 $ 29.09 $ 29.09 

EBIT/Revenues (%) 3.7% 3.7% 3.7% 3.7% 3.7% 

- Taxes $ 3.0 $ 3.1 $ 3.2 $ 3.3 $ 3.3 

Net Operating Profit after Taxes (NOPAT) $ 8.0 $ 8.1 $ 8.4 $ 8.6 $ 8.8 

Cash Flow Statement 

NOPAT $ 8.0 $ 8.1 $ 8.4 $ 8.6 $ 8.8 

+ Depreciation $ 7.7 $ 7.9 $ 8.1 $ 8.3 $ 8.5 + Loss on Disposal of Stranded Assets $ - $ - $ - $ - $ - - Change in Working Capital $ - $ 1.3 $ 1.8 $ 1.6 $ 1.1 

Cash Flows from Operations $ 15.6 $ 14.7 $ 14.7 $ 15.4 $ 16.2 

- Ordinary Capital Expenditures $ 8.0 $ 8.2 $ 8.4 $ 8.7 $ 8.8 - Capital Conversion Costs $ - $ - $ - $ - $ - 

Free Cash Flow $ 7.7 $ 6.5 $ 6.3 $ 6.7 $ 7.3 

Discounted Cash Flow

Free Cash Flow $ 7.7 $ 6.5 $ 6.3 $ 6.7 $ 7.3 Terminal Value $ - $ - $ - $ - $ - Present Value Factor 0.000 1.000 0.894 0.800 0.716 Discounted Cash Flow $ - $ 6.5 $ 5.6 $ 5.4 $ 5.3 

INPV at Baseline $ 75.9 
23

Conclusions

 Conversion costs are a cash drain

 Markups scenarios reflect the industry’s varying ability to recov

conversion costs

 As PER increases, results diverge – reflecting increasing uncerta

GRIM Results
24

Flat Markup

 Lower Bound Results

GRIM: Results

Full Analysis Period

(2014 ‐ 2048)

Base

Case PER 10 PER 25 PER 40 PER 5

INPV ($M) $75.91 $66.02 $32.80 ‐$29.50 ‐$138.

Change in INPV ($M) ‐ ‐$9.88 ‐$43.11 ‐$105.41 ‐$214.

Change in INPV (%) ‐ ‐13.0% ‐56.8% ‐138.9% ‐282.3

Industry Total Conversion Cost

($M)

‐ $19.72 $77.64 $172.66 $331.9
25

Cost Recovery Markup

 Upper Bound Results

GRIM: Results

Full Analysis Period

(2014 ‐ 2048)

Base

Case PER 10 PER 25 PER 40 PER 5

INPV ($M) $75.91 $90.32 $88.82 $72.88 $47.1Change in INPV ($M) ‐ $14.42 $12.92 ‐$3.02 ‐$28.8

Change in INPV (%) ‐ 19.0% 17.0% ‐4.0% ‐37.9

Industry Total Conversion Cost

($M)

‐ $19.72 $77.64 $172.66 $331.9
26

INPV ($M)

Base Case PER 10 PER 25 PER 40 PER 55 

Flat Markup $75.91 $66.02 $32.80 ‐$29.50 ‐$138.3

Cost Recovery Markup $75.91 $90.32 $88.82 $72.88 $47.10 

GRIM: Results – Both Scenarios

% Change in Industry Value

Base Case PER 10 PER 25 PER 40 PER 5

Flat Markup ‐ ‐13.0% ‐56.8% ‐138.9% ‐282.3

Cost Recovery Markup ‐ 19.0% 17.0% ‐4.0% ‐37.9% 

Change in INPV ($M)

Base Case PER 10 PER 25 PER 40 PER 55 

Flat Markup ‐ ‐$9.88 ‐$43.11 ‐$105.41 ‐$214.2

Cost Recovery Markup ‐ $14.42 $12.92 ‐$3.02 ‐$28.80 
27

GRIM: INPV Results, 2019 Effective Date

$75.9 $69.5

$48.5

$8.8

‐$60.7

$75.87 $85.92 $86.22 $77.59 $64.04

‐$200.00‐$150.00‐$100.00

‐$50.00

$0.00

$50.00

$100.00$150.00$200.00

PER 10 PER 25 PER 40 PER 55 

Industry Net Present Value (INPV)

INPV ($M) vs PER

Flat Markup INPV Cost Recovery INPV
28

GRIM: INPV Results, 2019 Effective Date

$75.9 $69.5

$48.5

$8.8

‐$60.7

75.9

85.9 86.2 77.6

64.0

‐

$19.72

$77.64

$172.66

$331.93

‐$200.00‐$150.00‐$100.00

‐$50.00

$0.00

$50.00

$100.00$150.00$200.00

PER 10 PER 25 PER 40 PER 55 

Industry Net Present Value (INPV)

INPV ($M) vs PER

Flat Markup INPV Cost Recovery INPV Industry Total Conversio
29

GRIM: % Change in INPV Results, 2019 Effectiv

0.0%

‐13.0%

‐56.8%

‐138.9%

‐282.3%

19.0% 17.0% ‐4.0%

‐37.9%

‐600.00%‐500.00%‐400.00%‐300.00%‐200.00%‐100.00%

0.00%

100.00%200.00%

PER 10 PER 25 PER 40 PER 55 

% Change in INPV

% Change in INPV

Flat Markup INPV Cost Recovery INPV
30

Industry Free Cash Flow – Flat Markup Scenar

GRIM: Cash Flow Impacts, 2019 Effective Date
31

Industry Free Cash Flow – Cost Recovery Markup Sc

GRIM: Cash Flow Impacts, 2019 Effective Date
32

Questions?
33

Backup Slides
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GRIM Analysis Period Reference Year: 2014

 Standards Year: 2019

 Terminal Year: 2048
35

Markup Manufacturer Markup = MSP/MPC

• Revised Markup > Baseline Markup

 Annuity Calculation

• Conversion cost = Σ (Annual Payments x Discount Factor)•

 Increased Cost Calculation

• Annual Payment / Failed Shipments = Increased Cost per U

 Revised Markup Calculation

• Revised Markup = (MSP + Increased Cost) / MPC

Calculation of Cost Recovery Markups
36

Annuity Calculation

 PV(A) is the value of the annuity at time=0. It is the conversion 

announcement year.

 A is the value of the individual payments in each compounding 

 i equals the interest rate that would be compounded for each p

time

 n is the number of payment periods

Manufacturer Impact Analysis