ManufacturerImpactAnalysisWebinarC&IPumpsJune4,20142GoalsPresenttheupdatedINPVresultsfortheCommercial&IndustrialPumpsindustryReviewthecashflowmodelusedtoarriveattheindustrynetpresentvalue(INPV)resultsAnswerquestionsaboutinterpretingresults3WhatistheManufacturerImpactAnalysisTheManufacturerImpactAnalysis(MIA)istheportionoftherulemakingwhereDOEassessestheimpactofstandardsonmanufacturersMarket &TechnologyScreeningAnalysisEngineeringAnalysisEnergy Use & EndUse LoadCharacterizationShipmentsAnalysisNationalImpactAnalysisMarkups forEquipmentPriceDeterminationLife-CycleCost andPaybackPeriod AnalysisManufacturerImpactAnalysis4WhatistheManufacturerImpactAnalysisTheManufacturerImpactAnalysis(MIA)istheportionoftherulemakingwhereDOEassessestheimpactofstandardsonmanufacturersMarket &TechnologyScreeningAnalysisEngineeringAnalysisEnergy Use & EndUse LoadCharacterizationShipmentsAnalysisNationalImpactAnalysisMarkups forEquipmentPriceDeterminationLife-CycleCost andPaybackPeriod AnalysisManufacturerImpactAnalysisMIAusesinputsfrommultipleupstreamanalyses5GovernmentRegulatoryImpactModel(GRIM)Tobetterunderstandtheimpactofstandardsonmanufacturers,DOEusestheGovernmentRegulatoryImpactModel(GRIM),adiscountedcashflowmodelTheprimaryoutputisIndustryNetPresentValue(INPV),usedtosuccinctlyquantifyindustryvalueBycomparingthebasecaseINVPtothestandardscaseINPV,DOEisabletoestimateimpactstomanufacturersDOEmodelstwodifferentmarkupscenariostoestablishupperandlowerboundsforthePumpsanalysis:•Flatmarkup(flatpricing)•CostRecovery(fullrecoveryofconversioncosts)6Starthere....GRIM:GovernmentRegulatoryImpactModelIndustry Income Statement ($M)2013 2014 2015 2016 2017 2018 2019Revenues $ 295.7 $ 302.6 $ 312.5 $ 321.0 $ 327.0 $ 332.0 $ 336.7Total Shipments(million units)0.377 0.385 0.398 0.409 0.417 0.423 0.429- Materials $ 142.6 $ 146.0 $ 150.7 $ 154.8 $ 157.8 $ 160.1 $ 162.4- Labor $ 38.9 $ 39.8 $ 41.1 $ 42.2 $ 43.0 $ 43.7 $44.3- Depreciation $ 7.7 $ 7.9 $ 8.1 $ 8.3 $ 8.5 $ 8.6$ 8.8- Overhead $ 26.9 $ 27.5 $ 28.4 $ 29.2 $ 29.7 $ 30.2 $30.6- Standard SG&A $ 63.9 $ 65.4 $ 67.5 $ 69.3 $ 70.6 $ 71.7 $72.7- R&D $ 4.7 $ 4.8 $ 5.0 $ 5.1 $ 5.2 $ 5.3 $5.4- Product Conversion Costs $ - $ - $ - $ - $ - $- $ -- Stranded Assets $ - $ - $ - $ - $ - $ - $-Earnings Before Interest and Taxes (EBIT) $ 11.0 $11.2 $ 11.6 $ 11.9 $ 12.1 $ 12.3 $ 12.5Per Unit EBIT($/unit)$ 29.09 $ 29.09 $ 29.09 $ 29.09 $ 29.09 $ 29.09 $ 29.09EBIT/Revenues (%) 3.7% 3.7% 3.7% 3.7% 3.7% 3.7% 3.7%- Taxes $ 3.0 $ 3.1 $ 3.2 $ 3.3 $ 3.3 $ 3.4 $3.4Net Operating Profit after Taxes (NOPAT) $ 8.0 $8.1 $ 8.4 $ 8.6 $8.8 $ 8.9 $ 9.1Cash Flow StatementNOPAT $ 8.0 $ 8.1 $ 8.4 $ 8.6 $ 8.8 $ 8.9 $9.1+ Depreciation $ 7.7 $ 7.9 $ 8.1 $ 8.3 $ 8.5 $ 8.6$ 8.8+ Loss on Disposal of Stranded Assets $ - $ - $ - $ - $ -$ - $ -- Change in Working Capital $ - $ 1.3 $ 1.8 $ 1.6 $ 1.1 $0.9 $ 0.9Cash Flows from Operations $ 15.6 $ 14.7 $ 14.7 $ 15.4 $ 16.2 $16.6 $ 16.9- Ordinary Capital Expenditures $ 8.0 $ 8.2 $ 8.4 $ 8.7 $ 8.8 $9.0 $ 9.1- Capital Conversion Costs $ - $ - $ - $ - $ - $- $ -Free Cash Flow $ 7.7 $ 6.5 $ 6.3 $ 6.7 $ 7.3 $ 7.7$ 7.8Discounted Cash FlowFree Cash Flow $ 7.7 $ 6.5 $ 6.3 $ 6.7 $ 7.3 $ 7.7$ 7.8Terminal Value $ - $ - $ - $ - $ - $ - $-Present Value Factor0.000 1.000 0.894 0.800 0.7160.640 0.573Discounted Cash Flow$ - $ 6.5 $ 5.6 $ 5.4 $ 5.3 $ 4.9 $4.5INPV at Baseline $ 75.97...togethere...GRIM:Results$75.9$66.0$32.8‐$29.5‐$138.4‐$284.3$75.9$90.3$88.8$72.9$47.1$164.6‐$350.0‐$300.0‐$250.0‐$200.0‐$150.0‐$100.0‐$50.0$0.0$50.0$100.0$150.0$200.0PER10 PER25 PER40 PER55 PER70

Industry Net Present Value (INPV)INPV($M)vsPERFlatMarkupINPVCostRecoveryINPV8...andhere...GRIM:Results0.0%‐13.0%‐56.8%‐138.9%19.0%17.0%‐4.0%‐160.00%‐140.00%‐120.00%‐100.00%‐80.00%‐60.00%‐40.00%‐20.00%0.00%20.00%40.00%PER10 PER25 PER40

% Change in INPV%ChangeinINPVFlatMarkupINPVCostRecoveryINPV9KeyInputstoGRIM:ManufacturerSellingPrice(MSP)ManufacturerProductionCost(MPC)ShipmentsFinancialMetricsConversionCostsMarkupsGRIM:KeyInputs10MSP=Sellingpricetomanufacturer’sfirstcustomerBasedonHIsurveydataandDOEdatabasedata,presentedon5/14Updatedsince5/28.Nowusesrevenuesthatincludemotorcosts.MSPisbasedon“AverageShipmentPrice(WithWeightedMotorPrice)”ManufacturerSellingPriceAverageMSP(BaseCase) ESCC+EFCM IL VT‐SAverageShipmentPrice(WithoutMotor) $639.18 $968.88 $319.10%ofunitsshippedwithmotors 70% 95% 70%AverageShipmentPrice(WithWeightedMotorPrice) $826.36 $1,391.26 $405.9711MPC=CosttoProduceOneUnitMSP=MPCxmarkupMPC=MSP/markupThebasecasemarkupisbasedonmanufacturersurveysconductedbyNavigantManufacturerProductionCostAverageMPC(BaseCase) ESCC ESFM IL VT‐SBaseCaseMSP $826.36 $826.37 $1,391.26 $405.97BaseCaseMarkup 1.35 1.33 1.44 1.35MPC$612.12 $621.33 $966.15 $300.7212UnitsShippedperYear(millions)Basedon~420kunitsshippedin2013MIAusestheshipmentsvaluesdevelopedbyLBNLandpresentedon5/28IndustryShipments(millions) 2012 2013 2014 DistributionESCC0.171 0.175 0.179 46%ESFM0.044 0.045 0.046 12%IL0.050 0.051 0.053 14%VT‐S0.104 0.106 0.109 28%Total0.370* 0.377 0.386 100%*RS‐Vunitsmakeuptheremaining50kunitstototal420kunitsperyear.However,RS‐Vequipmentisnotincludedintheanalysisatthistime.13FinancialMetricsUsedinGRIMTaxRate27.4%DiscountRateforNPV(real)11.8%WorkingCapital18.6% %ofrevenueNetProperty,Plant&Equipment16.0% %ofrevenueStandardSG&A21.6% %ofrevenueResearchandDevelopment1.6% %ofrevenueDepreciation2.6% %ofrevenueCapitalExpenditures2.7% %ofrevenueFinancialMetricsDerivedfromSECfilingsandrefinedbasedonmanufacturerfeedback14TotalIndustryConversionCostsConversionCostsareupfrontinvestmentsnecessitatedbyastandardDerivedfromHISurveydata,aspresentedon5/14ConversionCosts($MM) ESCC ESFM IL VT‐SPER10$9.73 $2.50 $4.97 $2.52PER25$38.70 $9.94 $19.67 $9.33PER40$86.68 $22.26 $44.57 $19.15PER55$164.93 $42.37 $86.82 $37.80PER70$270.23 $69.41 $141.70 $61.3015ConversionCostBreakdownCapitalConversionCosts:one‐timeinvestmentsinplant,property,andequipmentnecessitatedbyastandard.Includespatternsandtooling.ProductConversionCosts:one‐timenon‐capitalcostsnecessarytobringproductsintocompliancewithastandard.Includesrelatedresearch,productdevelopment,testing,andmarketingupdates.Totalconversioncostbreakdown,basedonHIdataandengineeringanalysisConversionCostsProductConversion69%CapitalConversion31%16ManufacturerMarkupScenariosChangeinmanufacturermarkupreflectstheindustry’sabilitytoincreasepricestorecoverconversioncostinvestmentsLowerBound:FlatMarkup•Minimalcostrecovery•Manufacturersarenotabletoraisepricesduetomarketfactors•Nochangeinend‐userpricingUpperBound:CostRecoveryMarkup•Highcostrecovery•ManufacturersareabletoincreaseMSPonfailingunitstorecoverconversioncosts•Increaseinend‐userpricingPricing&Markups17StandardsCaseMarkupsFlatMarkupassumesnochangeinMSPCostRecoveryMarkupassumesabilitytorecoverallconversioncostsovertheanalysisperiodwithdiscountingMarkupsFlatMarkup CostRecoveryMarkupBaseCase PER10 PER25 PER40 PER55 PER70ESCC1.35 1.56 1.77 1.82 2.11 2.42ESFM1.33 1.56 1.56 1.62 1.73 1.87IL1.44 1.54 1.65 1.81 2.03 2.24VT‐S1.35 1.35 1.35 1.35 1.36 1.36SimplePaybackPeriod(basedonrevenue)BaseCase PER10 PER25 PER40 PER55 PER70Years0 46786SimplepaybackperiodfortheindustryusingtheCostRecoveryMarkups18GRIMisanindustryvaluationmodelGRIM:GovernmentRegulatoryImpactModelIndustry Income Statement ($M)2013 2014 2015 2016 2017 2018 2019Revenues $ 295.7 $ 302.6 $ 312.5 $ 321.0 $ 327.0 $ 332.0 $ 336.7Total Shipments(million units)0.377 0.385 0.398 0.409 0.417 0.423 0.429- Materials $ 142.6 $ 146.0 $ 150.7 $ 154.8 $ 157.8 $ 160.1 $ 162.4- Labor $ 38.9 $ 39.8 $ 41.1 $ 42.2 $ 43.0 $ 43.7 $44.3- Depreciation $ 7.7 $ 7.9 $ 8.1 $ 8.3 $ 8.5 $ 8.6$ 8.8- Overhead $ 26.9 $ 27.5 $ 28.4 $ 29.2 $ 29.7 $ 30.2 $30.6- Standard SG&A $ 63.9 $ 65.4 $ 67.5 $ 69.3 $ 70.6 $ 71.7 $72.7- R&D $ 4.7 $ 4.8 $ 5.0 $ 5.1 $ 5.2 $ 5.3 $5.4- Product Conversion Costs $ - $ - $ - $ - $ - $- $ -- Stranded Assets $ - $ - $ - $ - $ - $ - $-Earnings Before Interest and Taxes (EBIT) $ 11.0 $11.2 $ 11.6 $ 11.9 $ 12.1 $ 12.3 $ 12.5Per Unit EBIT($/unit)$ 29.09 $ 29.09 $ 29.09 $ 29.09 $ 29.09 $ 29.09 $ 29.09EBIT/Revenues (%) 3.7% 3.7% 3.7% 3.7% 3.7% 3.7% 3.7%- Taxes $ 3.0 $ 3.1 $ 3.2 $ 3.3 $ 3.3 $ 3.4 $3.4Net Operating Profit after Taxes (NOPAT) $ 8.0 $8.1 $ 8.4 $ 8.6 $8.8 $ 8.9 $ 9.1Cash Flow StatementNOPAT $ 8.0 $ 8.1 $ 8.4 $ 8.6 $ 8.8 $ 8.9 $9.1+ Depreciation $ 7.7 $ 7.9 $ 8.1 $ 8.3 $ 8.5 $ 8.6$ 8.8+ Loss on Disposal of Stranded Assets $ - $ - $ - $ - $ -$ - $ -- Change in Working Capital $ - $ 1.3 $ 1.8 $ 1.6 $ 1.1 $0.9 $ 0.9Cash Flows from Operations $ 15.6 $ 14.7 $ 14.7 $ 15.4 $ 16.2 $16.6 $ 16.9- Ordinary Capital Expenditures $ 8.0 $ 8.2 $ 8.4 $ 8.7 $ 8.8 $9.0 $ 9.1- Capital Conversion Costs $ - $ - $ - $ - $ - $- $ -Free Cash Flow $ 7.7 $ 6.5 $ 6.3 $ 6.7 $ 7.3 $ 7.7$ 7.8Discounted Cash FlowFree Cash Flow $ 7.7 $ 6.5 $ 6.3 $ 6.7 $ 7.3 $ 7.7$ 7.8Terminal Value $ - $ - $ - $ - $ - $ - $-Present Value Factor0.000 1.000 0.894 0.800 0.7160.640 0.573Discounted Cash Flow$ - $ 6.5 $ 5.6 $ 5.4 $ 5.3 $ 4.9 $4.5INPV at Baseline $ 75.919IndustryIncomeStatementIndustry Income Statement (in 2013$ millions)RevenuesTotal Shipments(million units)- Materials- Labor- Depreciation- Overhead- Standard SG&A- R&D- Product Conversion Costs- Stranded AssetsEarnings Before Interest and Taxes (EBIT)- TaxesNet Operating Profit after Taxes (NOPAT)Cash Flow StatementNOPAT+ Depreciation+ Loss on Disposal of Stranded Assets- Change in Working CapitalCash Flows from Operations- Ordinary Capital Expenditures- Capital Conversion CostsFree Cash FlowDiscounted Cash FlowFree Cash FlowTerminal ValuePresent Value FactorDiscounted Cash FlowINPV at Baseline $MPCOperatingExpenses, basedonfinancialmetricsConversionCostsShipmentsxMSPforeachclass ofpumpbased onfinancialmetricsandEBIT20IndustryCashFlowStatementIndustry Income Statement (in 2013$ millions)RevenuesTotal Shipments(million units)- Materials- Labor- Depreciation- Overhead- Standard SG&A- R&D- Product Conversion Costs- Stranded AssetsEarnings Before Interest and Taxes (EBIT)- TaxesNet Operating Profit after Taxes (NOPAT)Cash Flow StatementNOPAT+ Depreciation+ Loss on Disposal of Stranded Assets- Change in Working CapitalCash Flows from Operations- Ordinary Capital Expenditures- Capital Conversion CostsFree Cash FlowDiscounted Cash FlowFree Cash FlowTerminal ValuePresent Value FactorDiscounted Cash FlowINPV at Baseline $Addback non‐cashitemsFrom incomestatementaboveSubtract increasesincapex andworkingcapital21IndustryCashFlowStatementIndustry Income Statement (in 2013$ millions)RevenuesTotal Shipments(million units)- Materials- Labor- Depreciation- Overhead- Standard SG&A- R&D- Product Conversion Costs- Stranded AssetsEarnings Before Interest and Taxes (EBIT)- TaxesNet Operating Profit after Taxes (NOPAT)Cash Flow StatementNOPAT+ Depreciation+ Loss on Disposal of Stranded Assets- Change in Working CapitalCash Flows from Operations- Ordinary Capital Expenditures- Capital Conversion CostsFree Cash FlowDiscounted Cash FlowFree Cash FlowTerminal ValuePresent Value FactorDiscounted Cash FlowINPV at Baseline $From cashflowstatementaboveBasedonthediscountrate22GRIMisanindustryvaluationmodelGRIM:GovernmentRegulatoryImpactModelIndustry Income Statement ($M)2013 2014 2015 2016 2017 2018 2019Revenues $ 295.7 $ 302.6 $ 312.5 $ 321.0 $ 327.0 $ 332.0 $ 336.7Total Shipments(million units)0.377 0.385 0.398 0.409 0.417 0.423 0.429- Materials $ 142.6 $ 146.0 $ 150.7 $ 154.8 $ 157.8 $ 160.1 $ 162.4- Labor $ 38.9 $ 39.8 $ 41.1 $ 42.2 $ 43.0 $ 43.7 $44.3- Depreciation $ 7.7 $ 7.9 $ 8.1 $ 8.3 $ 8.5 $ 8.6$ 8.8- Overhead $ 26.9 $ 27.5 $ 28.4 $ 29.2 $ 29.7 $ 30.2 $30.6- Standard SG&A $ 63.9 $ 65.4 $ 67.5 $ 69.3 $ 70.6 $ 71.7 $72.7- R&D $ 4.7 $ 4.8 $ 5.0 $ 5.1 $ 5.2 $ 5.3 $5.4- Product Conversion Costs $ - $ - $ - $ - $ - $- $ -- Stranded Assets $ - $ - $ - $ - $ - $ - $-Earnings Before Interest and Taxes (EBIT) $ 11.0 $11.2 $ 11.6 $ 11.9 $ 12.1 $ 12.3 $ 12.5Per Unit EBIT($/unit)$ 29.09 $ 29.09 $ 29.09 $ 29.09 $ 29.09 $ 29.09 $ 29.09EBIT/Revenues (%) 3.7% 3.7% 3.7% 3.7% 3.7% 3.7% 3.7%- Taxes $ 3.0 $ 3.1 $ 3.2 $ 3.3 $ 3.3 $ 3.4 $3.4Net Operating Profit after Taxes (NOPAT) $ 8.0 $8.1 $ 8.4 $ 8.6 $8.8 $ 8.9 $ 9.1Cash Flow StatementNOPAT $ 8.0 $ 8.1 $ 8.4 $ 8.6 $ 8.8 $ 8.9 $9.1+ Depreciation $ 7.7 $ 7.9 $ 8.1 $ 8.3 $ 8.5 $ 8.6$ 8.8+ Loss on Disposal of Stranded Assets $ - $ - $ - $ - $ -$ - $ -- Change in Working Capital $ - $ 1.3 $ 1.8 $ 1.6 $ 1.1 $0.9 $ 0.9Cash Flows from Operations $ 15.6 $ 14.7 $ 14.7 $ 15.4 $ 16.2 $16.6 $ 16.9- Ordinary Capital Expenditures $ 8.0 $ 8.2 $ 8.4 $ 8.7 $ 8.8 $9.0 $ 9.1- Capital Conversion Costs $ - $ - $ - $ - $ - $- $ -Free Cash Flow $ 7.7 $ 6.5 $ 6.3 $ 6.7 $ 7.3 $ 7.7$ 7.8Discounted Cash FlowFree Cash Flow $ 7.7 $ 6.5 $ 6.3 $ 6.7 $ 7.3 $ 7.7$ 7.8Terminal Value $ - $ - $ - $ - $ - $ - $-Present Value Factor0.000 1.000 0.894 0.800 0.7160.640 0.573Discounted Cash Flow$ - $ 6.5 $ 5.6 $ 5.4 $ 5.3 $ 4.9 $4.5INPV at Baseline $ 75.923ConclusionsConversioncostsareacashdrainMarkupsscenariosreflecttheindustry’svaryingabilitytorecoverconversioncostsAsPERincreases,resultsdiverge– reflectingincreasinguncertaintyGRIMResults24FlatMarkupLowerBoundResultsGRIM:ResultsFullAnalysisPeriod(2014‐2048)BaseCasePER10 PER25 PER40 PER55 PER70INPV($M)$75.91 $66.02 $32.80‐$29.50‐$138.38‐$284.28ChangeinINPV($M)‐ ‐$9.88‐$43.11‐$105.41‐$214.28‐$360.19ChangeinINPV(%)‐‐13.0%‐56.8%‐138.9%‐282.3%‐474.5%IndustryTotalConversionCost($M)‐$19.72 $77.64 $172.66 $331.93 $542.6525CostRecoveryMarkupUpperBoundResultsGRIM:ResultsFullAnalysisPeriod(2014‐2048)BaseCasePER10 PER25 PER40 PER55 PER70INPV($M)$75.91 $90.32 $88.82 $72.88 $47.10 $164.63ChangeinINPV($M)‐$14.42 $12.92‐$3.02‐$28.80 $88.73ChangeinINPV(%)‐19.0% 17.0%‐4.0%‐37.9% 116.9%IndustryTotalConversionCost($M)‐$19.72 $77.64 $172.66 $331.93 $542.6526INPV($M)BaseCase PER10 PER25 PER40 PER55 PER70FlatMarkup$75.91 $66.02 $32.80‐$29.50‐$138.38‐$284.28CostRecoveryMarkup$75.91 $90.32 $88.82 $72.88 $47.10 $164.63GRIM:Results– BothScenarios%ChangeinIndustryValueBaseCase PER10 PER25 PER40 PER55 PER70FlatMarkup‐ ‐13.0%‐56.8%‐138.9%‐282.3%‐474.5%CostRecoveryMarkup‐19.0% 17.0%‐4.0%‐37.9% 116.9%ChangeinINPV($M)BaseCase PER10 PER25 PER40 PER55 PER70FlatMarkup‐ ‐$9.88‐$43.11‐$105.41‐$214.28‐$360.19CostRecoveryMarkup‐$14.42 $12.92‐$3.02‐$28.80 $88.7327GRIM:INPVResults,2019EffectiveDate$75.9$69.5$48.5$8.8‐$60.7‐$154.0$75.87$85.92$86.22$77.59$64.04$148.08‐$200.00‐$150.00‐$100.00‐$50.00$0.00$50.00$100.00$150.00$200.00PER10 PER25 PER40 PER55 PER70

Industry Net Present Value (INPV)INPV($M)vsPERFlatMarkupINPVCostRecoveryINPV28GRIM:INPVResults,2019EffectiveDate$75.9$69.5$48.5$8.8‐$60.7‐$154.075.985.986.277.664.0148.1‐$19.72$77.64$172.66$331.93$542.65‐$100.0$200.0$300.0$400.0$500.0$600.0‐$200.00‐$150.00‐$100.00‐$50.00$0.00$50.00$100.00$150.00$200.00PER10 PER25 PER40 PER55 PER70 Industry Conversion Costs

Industry Net Present Value (INPV)INPV($M)vsPERFlatMarkupINPVCostRecoveryINPVIndustryTotalConversionCost29GRIM:%ChangeinINPVResults,2019EffectiveDate0.0%‐13.0%‐56.8%‐138.9%‐282.3%‐474.5%19.0%17.0%‐4.0%‐37.9%116.9%‐600.00%‐500.00%‐400.00%‐300.00%‐200.00%‐100.00%0.00%100.00%200.00%PER10 PER25 PER40 PER55 PER70

% Change in INPV%ChangeinINPVFlatMarkupINPVCostRecoveryINPV30IndustryFreeCashFlow– FlatMarkupScenarioGRIM:CashFlowImpacts,2019EffectiveDate31IndustryFreeCashFlow– CostRecoveryMarkupScenarioGRIM:CashFlowImpacts,2019EffectiveDate32Questions?33BackupSlides34GRIMAnalysisPeriodReferenceYear:2014StandardsYear:2019TerminalYear:204835MarkupManufacturerMarkup=MSP/MPC•RevisedMarkup>BaselineMarkupAnnuityCalculation•Conversioncost=Σ(AnnualPaymentsxDiscountFactor)•IncreasedCostCalculation•AnnualPayment/FailedShipments=IncreasedCostperUnitRevisedMarkupCalculation•RevisedMarkup=(MSP+IncreasedCost)/MPCCalculationofCostRecoveryMarkups36AnnuityCalculationPV(A)isthevalueoftheannuityattime=0.Itistheconversioncostinannouncementyear.Aisthevalueoftheindividualpaymentsineachcompoundingperiod.i equalstheinterestratethatwouldbecompoundedforeachperiodoftimenisthenumberofpaymentperiodsManufacturerImpactAnalysis