12-i 

### CHAPTER 12. MANUFACTURER IMPACT ANALYSIS

12.1 INTRODUCTION

................................................................................................ . 12 -6

12.2 METHODOLOGY

................................................................................................ 12 -6

12.2.1 Phase I: Industry Profile

................................................................................. 12 -7

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

..................... 12 -7 12.2.2.1 Industry Cash-Flow Analysis

.......................................................... 12 -7
12.2.2.2 Interview Guides

.............................................................................. 12 -8

12.2.3 Phase III: Subgroup Analysis

........................................................................ 12 -8 12.2.3.1 Manufacturing Interviews

............................................................... 12 -8 12.2.3.2 Revised Industry Cash-Flow Analysis

........................................... 12 -9 12.2.3.3 Manufacturer Subgroup Analysis

................................................... 12 -9 12.2.3.4 Small-Business Manufacturer Subgroup

........................................ 12 -9 12.2.3.5 Manufacturing Capacity Impact

.................................................... 12

- 10 12.2.3.6 Employment Impact

....................................................................... 12

- 10 12.2.3.7 Cumulative Regulatory Burden

.................................................... 12

- 11

12.3 MANUFACTURER IMPACT ANALYSIS KEY ISSUES

............................. 12

- 11

12.3.1 Residential Clothes Dryers Key Issues

....................................................... 12

- 11

12.3.1.1 Test Procedure

................................................................................ 12

- 11 12.3.1.2 Underwriters Laboratories (UL) Fire Containment Standard

..... 12

- 11 12.3.1.3 Heat Pump Technology

................................................................ . 12

- 11 12.3.1.1 Impacts on Profitability

................................................................ . 12

- 12

12.3.2 Room Air Conditioners Key Issues

............................................................. 12

- 13 12.3.2.1 Impact on Manufacturer Profitability

........................................... 12

- 13 12.3.2.2 Impact on Product Utility

.............................................................. 12

- 13 12.3.2.3 Component Availability

................................................................ 12

- 14

12.3.2.4 Size Constraints

.............................................................................. 12

- 14 12.3.2.5 Product Switching

.......................................................................... 12

- 15

12.4 GRIM INPUTS AND ASSUMPTIONS

............................................................ 12

- 15

12.4.1 Overview of the GRIM

................................................................................ 12

- 15

12.4.2 Sources for GRIM Inputs

............................................................................. 12

- 16 12.4.2.1 Corporate Annual Reports

............................................................. 12

- 16 12.4.2.2 Standard and Poor Credit Ratings

................................................. 12

- 17 12.4.2.3 Shipment Model

............................................................................. 12

- 17 12.4.2.4 Engineering Analysis

..................................................................... 12

- 17

12.4.2.5 Manufacturer Interviews

............................................................... 12

- 17

12.4.3 Financial Parameters

.................................................................................... 12

- 17

12.4.4 Corporate Discount Rate

.............................................................................. 12

- 18

12.4.5 Trial Standard Levels

................................................................................... 12

- 20

12.4.6 NIA Shipment Forecast

................................................................................ 12

- 22 12.4.6.1 Base Case Shipments Forecast

...................................................... 12

- 23 12.4.6.2 Standards Case Shipments Forecast

............................................. 12

- 24

12. 4.7 Production Costs

........................................................................................... 12

- 24

Clothes Dryers Production Cost Estimates

............................... 12

- 26

Room Air Conditioner Production Cost Estimates

................... 12

- 2712- ii



### 12.4.8 Conversion Costs

.......................................................................................... 12

- 29 12.4.8.1 Clothes Dryer Product and Capital Conversion Costs

................. 12

- 29 12.4.8.2 Room Air Conditioner Product and Capital Conversion Costs

.. 12

- 32

12.4.9 Markup Scenarios

......................................................................................... 12

- 36 12.4.9.1 Flat Markup Scenario

.................................................................... 12

- 36 12.4.9.2 Preservation of Operating Profit Scenario

.................................... 12

- 36

Clothes Dryers Preservation of Operating Profit Manufacturer Markups

........................................................................... 12

- 37 Room Air Conditioner Preservation of Operating Profit Manufacturer Markups

................................................... 12

- 40

12.5 INDUSTRY FINANCIAL IMPACTS

............................................................... 12

- 42

12.5.1 Introduction

................................................................................................... 12

- 42

12.5.2 Residential Clothes Dryer Industry Financial Impacts

.............................. 12

- 44

12.5.3 Room Air Conditioner Industry Financial Impacts

.................................... 12

- 46

12.6 IMPACTS ON SMALL RESIDENTIAL CLOTHES DRYER AND ROOM AIR

CONDITIONER MANUFACTURERS

............................................................. 12

- 47

12.7 OTHER IMPACTS

.............................................................................................. 12

- 48

12.7.1 Employment

.................................................................................................. 12

- 48 12.7.1.1 Residential Clothes Dryer Employment Impac ts

......................... 12

- 48 12.7.1.2 Room Air Conditioner Employment Impacts

.............................. 12

- 51

12.7.2 Production Capacity

..................................................................................... 12

- 51 12.7.2.1 Residential Clothes Dryer Capacity Impacts

............................... 12

- 51 12.7.2.2 Room Air Conditioner Capacity Impacts

..................................... 12

- 51

12.7.3 Cumulative Regulatory Burden

................................................................... 12

- 52 12.7.3.1 DOE Regulations for Other Products Produced by Residential Clothes Dryer and Room Air Conditioner Manufacturers

............ 12

- 53 12.7.3.2 Other Federal Regulations

............................................................. 12

- 56

EPA HCFC Ban

.......................................................................... 12

- 56 Potential Climate Change and Greenhouse Gas Legislation

.... 12

- 57 12.7.3.3 Other Regulations That Could Impact Clothes Dryer and Room Air

Conditioner Manufacturers

.............................................................. 12

- 57
UL Fire Containment Standard

.................................................. 12

- 57 State Energy Conservation Standards

........................................ 12

- 57

In ternational Energy Conservation Standards

........................... 12

- 58

12.8 CONCLUSION

.................................................................................................... 12

- 58

12.8.1 Residential Clothes Dryers

.......................................................................... 12

- 58

12.8.2 Room Air Conditioners

................................................................................ 12

- 61

LIST OF TABLES

Table 12.2.1 SBA and NAICS Classification of Small Businesses Potentially Affected by This Rulemaking

............................................................................................................... 12

- 10 Table 12.4.1 GRIM Financial Parameters Based on 1999–2006 Weighted Company

Financial Data

................................................................................................................... 12

- 18 Table 12.4.2 Cost of Equity Calculation

......................................................................... 12

- 1912- iii



### Table 12.4.3 Cost of Debt Calculation

............................................................................ 12

- 20 Table 12.4.4 Trial Standard Levels for Clothes Dryers

................................................. 12

- 21

Table 12.4.5 Trial Standard Levels for Room Air Conditioners

................................... 12

- 22 Table 12.4.6 Total NIA Shipments Forecast in 2014 in the Main NIA Shipment Scenario (Residential Clothes Dryers)

............................................................................................ 12

- 22 Table 12.4.7 Total NIA Shipments Forecast in 2014 (Room Air Conditioners)

......... 12

- 23 Table 12.4.8 Base-Case Distribution of Efficiencies for Residential Clothes Dryers in

2014

................................................................................................................................... 12

- 23

Table 12.4.9 Base-Case Distribution of Efficiencies for Room Air Conditioners in 2014

........................................................................................................................................... 12

- 24 Table 12.4.10 MPC Breakdown for Product Class 1 - Electric Standard Vented Dryers 12-

26 Table 12.4.11 MPC Breakdown for Product Class 2 -Electric Compact Vented Dryers (120V)

............................................................................................................................... 12

- 26 Table 12.4.12 MPC Breakdown for Product Class 3 -Electric Compact Vented Dryers (240V)

............................................................................................................................... 12

- 26 Table 12.4.13 MPC Breakdown for Product Class 4 - Gas Vented Dryers

.................. 12

- 27 Table 12.4.14 MPC Breakdown for Product Class 5 - Electric Compact (240V) Ventless Dryers

................................................................................................................................ 12

- 27

Table 12.4.15 MPC Breakdown for Product Class 6 - Electric Combination Ventless Dryers

................................................................................................................................ 12

- 27

Table 12.4.16 MPC Breakdown for Product Class 1 - Room Air Conditioners without Reverse Cycle and with Louvered Sides - Less than 6,000 Btu/h

................................ . 12

- 28

Table 12.4.17 MPC Breakdown for Product Class 3 - Room Air Conditioners without Reverse Cycle and with Louvered Sides - 8,000 to 13,999 Btu/h

................................ . 12

- 28

Table 12.4.18 MPC Breakdown for Product Class 5A - Room Air Conditioners without Reverse Cycle and with Louvered Sides - 20,000 to 24,999 Btu/h

............................... 12

- 28

Table 12.4.19 MPC Breakdown for Product Class 5B - Room Air Conditioners without Reverse Cycle and with Louvered Sides - 25,000 Btu/h and more

............................... 12

- 28

Table 12.4.20 MPC Breakdown for Product Class 8A - Room Air Conditioners without Reverse Cycle and without Louvered Sides - 8,000 to 10,999 Btu/h

........................... 12

- 29

Table 12.4.21 MPC Breakdown for Product Class 8B - Room Air Conditioners without Reverse Cycle and without Louvered Sides - 11,000 to 13,999 Btu/h

......................... 12

- 29 Table 12.4.22 Product and Capital Conversion Costs for Product Class 1 - Electric Standard Vented Dryers by TSL

..................................................................................... 12

- 30 Table 12.4.23 Product and Capital Conversion Costs for Product Class 2 - Electric Compact Vented Dryers (120V) by TSL

........................................................................ 12

- 31 Table 12.4.24 Product and Capital Conversion Costs for Product Class 3 - Electric Compact Vented Dryers (240V) by TSL

........................................................................ 12

- 31 Table 12.4.25 Product and Capital Conversion Costs for Product Class 4 - Gas Vented Dryers by TSL

.................................................................................................................. 12

- 31 Table 12.4.26 Product and Capital Conversion Costs for Product Class 5 - Electric Compact (240V) Ventless Dryers by TSL

...................................................................... 12

- 32 Table 12.4.27 Product and Capital Conversion Costs for Product Class 6 - Electric Combination Ventless Dryers by TSL

............................................................................ 12

- 3212- iv



### Table 12.4.28 Product and Capital Conversion Costs for Product Class 1 - Room Air Conditioners without Reverse Cycle and with Louvered Sides - Less than 6,000 Btu/h by

TSL

.................................................................................................................................... 12

- 33 Table 12.4.29 Product and Capital Conversion Costs for Product Class 3 - Room Air Conditioners without Reverse Cycle and with Louvered Sides - 8,000 to 13,999 Btu/h by

TSL

.................................................................................................................................... 12

- 34 Table 12.4.30 Product and Capital Conversion Costs for Product Class 5A - Room Air Conditioners without Reverse Cycle and with Louvered Sides - 20,000 to 24,999 Btu/h by TSL

............................................................................................................................... 12

- 34 Table 12.4.31 Product and Capital Conversion Costs for Product Class 5B - Room Air Conditioners without Reverse Cycle and with Louvered Sides - 25,000 Btu/h and more by TSL

............................................................................................................................... 12

- 35 Table 12.4.32 Product and Capital Conversion Costs for Product Class 8A - Room Air Conditioners without Reverse Cycle and without Louvered Sides - 8,000 to 10,999 Btu/h by TSL

............................................................................................................................... 12

- 35 Table 12.4.33 Product and Capital Conversion Costs for Product Class 8B - Room Air Conditioners without Reverse Cycle and without Louvered Sides - 11,000 to 13,999 Btu/h by TSL

.................................................................................................................... 12

- 36 Table 12.4.34 Preservation of Operating Profit Markups for Product Class 1 - Electric Standard Vented Dryers

................................................................................................... 12

- 38 Table 12.4.35 Preservation of Operating Profit Markups for Product Class 2 - Electric Compact Vented Dryers (120V)

...................................................................................... 12

- 38 Table 12.4.36 Preservation of Operating Profit Markups for Product Class 3 - Electric Compact Vented Dryers (240V)

...................................................................................... 12

- 39 Table 12.4.37 Preservation of Operating Profit Markups for Product Class 4 - Gas Vented Dryers

................................................................................................................................ 12

- 39 Table 12.4.38 Preservation of Operating Profit Markups for Product Class 5 - Electric Compact (240V) Ventless Dryers

................................................................................... 12

- 39 Table 12.4.39 Preservation of Operating Profit Markups for Product Class 6 - Electric Combination Ventless Dryers

.......................................................................................... 12

- 40 Table 12.4.40 Preservation of Operating Profit Markups for Product Class 1 - Room Air Conditioners without Reverse Cycle and with Louvered Sides - Less than 6,000 Btu/h 12

- 40 Table 12.4.41 Preservation of Operating Profit Markups for Product Class 3 - Room Air Conditioners without Reverse Cycle and with Louvered Sides - 8,000 to 13,999 Btu/h 12

- 41 Table 12.4.42 Preservation of Operating Profit Markups for Product Class 5A - Room Air Conditioners without Reverse Cycle and with Louvered Sides - 20,000 to 24,999 Btu/h

........................................................................................................................................... 12

- 41 Table 12.4.43 Preservation of Operating Profit Markups for Product Class 5B - Room Air Conditioners without Reverse Cycle and with Louvered Sides - 25,000 Btu/h and more

........................................................................................................................................... 12

- 41 Table 12.4.44 Preservation of Operating Profit Markups for Product Class 8A - Room Air Conditioners without Reverse Cycle and without Louvered Sides - 8,000 to 10,999 Btu/h

........................................................................................................................................... 12

- 4212-v



### Table 12.4.45 Preservation of Operating Profit Markups for Product Class 8B - Room Air Conditioners without Reverse Cycle and without Louvered Sides - 11,000 to 13,999

Btu/h

.................................................................................................................................. 12

- 42 Table 12.5.1 Changes in Industry Net Present Value for Residential Clothes Dryers (Flat Markup Scenario)

............................................................................................................. 12

- 44 Table 12.5.2 Changes in Industry Net Present Value for Residential Clothes Dryers (Preservation of Operating Profit Markup Scenario)

..................................................... 12

- 44 Table 12.5.3 Changes in Industry Net Present Value for Room Air Conditioners (Flat Markup Scenario)

............................................................................................................. 12

- 46 Table 12.5.4 Changes in Industry Net Present Value for Room Air Conditioners (Preservation of Operating Profit Markup Scenario)

..................................................... 12

- 46 Table 12.7.1 Potential Changes in the Total Number of Domestic Residential Clothes Dryer Production Workers in 2014

................................................................................. 12

- 50 Table 12.7.2 Other DOE and Federal Actions Affecting the Residential Clothes Dryer

and Room Air Conditioner Industries

............................................................................. 12

- 54 Table 12.7.3 DOE Regulations on Products For Which Clothes Dryer and Room Air Conditioner Manufacturers Hold Significant Market Share

.......................................... 12

- 56

LIST OF FIGURES

Figure 12.4.1 Using the GRIM to Calculate Cash Flow

................................................ 12

- 16 Figure 12.5.1 Annual Industry Net Cash Flows for Residential Clothes Dryers (Flat Markup Scenario)

............................................................................................................. 12

- 45 Figure 12.5.2 Annual Industry Net Cash Flows for Residential Clothes Dryers (Preservation of Operating Profit Markup Scenario)

..................................................... 12

- 45 Figure 12.5.3 Annual Industry Net Cash Flows for Room Air Conditioners (Flat Markup Scenario)

........................................................................................................................... 12

- 46 Figure 12.5.4 Annual Industry Net Cash Flows for Room Air Conditioners (Preservation of Operating Profit Markup Scenario)

............................................................................ 12

- 47 Figure 12.7.1 Total Residential Clothes Dryer Industry Domestic Employment by Year

........................................................................................................................................... 12

- 5012-6 

### CHAPTER 12. MANUFACTURER IMPACT ANALYSIS

12.1 INTRODUCTION

In determining whether a standard is economically justified, the U.S. Department of Energy (DOE) is required to consider “the economic impact of the standard on the manufacturers and on the consumers of the products subject to such a standard.” (42 U.S.C. 6313(a)(6)(B)(i)) The law also calls for an assessment of the impact of any lessening of competition as determined in writing by the Attorney General

. Id . DOE conducted a manufacturer impact analysis (MIA) to estimate the financial impact of more stringent energy conservation standards on manufacturers of residential clothes dryers and room air conditioners, and assessed the impact of such standards

on direct employment and manufacturing capacity.

The MIA has both quantitative and qualitative aspects. The quantitative part of the MIA primarily relies on the Government Regulatory Impact Model (GRIM), an industry cash-flow model adapted for each product in this rulemaking. The GRIM inputs include information on industry cost structure, shipments, and pricing strategies. The GRIM’s key output is the industry net present value (INPV). The model estimates the financial impact of more stringent energy conservation standards for each product by comparing changes in INPV between a base case and the various trial standard levels (TSLs) in the standards case. The qualitative part of the MIA addresses product characteristics, manufacturer characteristics, market and product trends, as well as the impact of standards on subgroups of manufacturers.

12.2 METHODOLOGY

DOE conducted the MIA in three phases. Phase I, “Industry Profile,” consisted of preparing an industry characterization for the residential clothes dryer and room air conditioner industries, including data on market share, sales volumes and trends, pricing, employment, and financial structure. In Phase II, “Industry Cash Flow,” DOE used the GRIM to assess the impacts of amended energy conservation standards on the products in this rulemaking.

In Phase II, DOE created a separate GRIM for residential clothes dryers and room air conditioners and separate interview guides to gather information on the potential impacts on manufacturers. In the MIA, DOE aggregated the results for similar product classes made by the same manufacturers and in the same production facilities to allow DOE to better assess the impacts of amended energy conservation standards on manufacturers.

In Phase III, “Subgroup Impact Analysis,” DOE interviewed manufacturers representing over 90 percent of clothes dryer sales and approximately 50 percent of room air conditioner sales. Interviewees included manufacturers with various market shares and product focus

, providing a representative cross-section of the industries. During interviews, DOE discussed financial topics specific to each manufacturer and obtained each manufacturer’s view of the industry. The interviews provided DOE with valuable information for evaluating the impacts of amended energy conservation standards on manufacturer cash flows, investment requirements, and employment.12-7



### DOE groups the MIA results by product classes that are made by the same manufacturers. DOE presents results for residential clothes dryers and room air conditioners separately.

12.2.1 Phase I: Industry Profile

In Phase I of the MIA, DOE prepared a profile of the residential clothes dryer and room air conditioner industries that built upon the market and technology assessment prepared for this rulemaking. (See chapter 3 of this Technical Support Document (TSD).) Before initiating the detailed impact studies, DOE collected information on the present and past structure and market characteristics of each industry. This information included market share data, product shipments, manufacturer markups, and the cost structure for various manufacturers. The industry profile includes: (1) further detail on the overall market and product characteristics; (2) estimated manufacturer market shares; (3) financial parameters such as net plant, property, and equipment; selling, general and administrative (SG&A) expenses; cost of goods sold, etc.; and (4) trends inthe number of firms, market, and product characteristics. The industry profile included a topdown cost analysis of manufacturers in each industry that DOE used to derive preliminary financial inputs for the GRIM (e.g.

, revenues, depreciation, SG&A, and research and development (R&D) expenses).

DOE also used public information to further calibrate its initial characterization of each industry, including Securities and Exchange Commission (SEC) 10–K reports, 1 

### Standard & Poor’s (S&P) stock reports, 2 

### and corporate annual reports. DOE supplemented this public information with data released by privately held companies.

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

Phase II focused on the financial impacts of amended energy conservation standards on each industry as a whole

. More stringent energy conservation standards can affect manufacturer cash flows in three distinct ways: (1) by creating a need for increased investment, (2) by raising production costs per unit, and (3) by altering revenue due to higher per-unit prices and/or possible changes in sales volumes. In Phase II, DOE performed preliminary industry cash-flow analyses and prepared written guides for manufacturer interviews. DOE used the GRIMs to perform two cash-flow analyses: one for the clothes dryers industry and one for room air

conditioners

. In performing these analyses, DOE used the financial values derived during Phase 1 and the shipment assumptions from the NIA.

12.2.2.1 Industry Cash-Flow Analysis

The GRIM uses several factors to determine a series of annual cash flows from the announcement year of amended energy conservation standards until several years after the standards’ compliance date. These factors include annual expected revenues, costs of sales, SG&A, taxes, and capital expenditures related to the amended standards. Inputs to the GRIM include manufacturing costs and selling prices and shipments forecasts developed in other analyses. DOE derived the manufacturing costs from the engineering analysis and information provided by the industry and estimated typical manufacturer markups from public financial reports and interviews with manufacturers. DOE developed alternative markup scenarios for12-8



### each GRIM based on discussions with manufacturers. DOE’s shipments analysis, presented in chapter 10 of this TSD, provided the basis for the shipment projections in each GRIM. The financial parameters were developed using publicly available manufacturer data and were revised with information submitted confidentially during manufacturer interviews. The GRIM results are compared to base case projections for each industry. The financial impact of amended energy conservation standards is the difference between the base-case and standards-case at each

TSL discounted annual cash flows.

12.2.2.2 Interview Guides

During Phase III of the MIA, DOE interviewed manufacturers to gather information on the effects of amended energy conservation on revenues and finances, direct employment, capital assets, and industry competitiveness. Before the interviews, DOE distributed interview guides for clothes dryers and room air conditioners. The interview guides provided a starting point to identify relevant issues and help identify the impacts of amended energy conservation standards on individual manufacturers or subgroups of manufacturers. Most of the information DOE received from these meetings is protected by non-disclosure agreements and resides with DOE’s contractors. Before each telephone interview or site visit, DOE provided company representatives with an interview guide that included the topics for which DOE sought input. The MIA interview topics included (1) key issues to this rulemaking; (2) a company overview and organizational characteristics; (3) engineering and life cycle cost follow- up ; (4) manufacturer markups and profitability; (5) shipment projections; (6) financial parameters; (7) conversion costs; (8) cumulative regulatory burden; (9) direct employment impact assessment; (10 ) manufacturing capacity and non-US sales; (11 ) impact on competition; and (12) impacts on small business. The interview guides are presented in Appendix 12-A.

12.2.3 Phase III: Subgroup Analysis

For its analysis, DOE presented the impacts on clothes dryers and room air conditioners separately. While conducting the MIA, DOE interviewed a representative cross-section of residential clothes dryer and room air conditioner manufacturers. The MIA interviews broadened the discussion to include business-related topics. DOE sought to obtain feedback from industry on the approaches used in the GRIMs and to isolate key issues and concerns. During interviews,

DOE defined no manufacturer subgroup s that could be disproportionately impacted by amended energy conservation standards.

12.2.3.1 Manufacturing Interviews

The information gathered in Phase I and the cash-flow analysis performed in Phase II are supplemented with information gathered from manufacturer interviews in Phase III. The interview process provides an opportunity for interested parties to express their views on important issues privately, allowing confidential or sensitive information to be considered in the rulemaking process.

DOE used these interviews to tailor each GRIM to reflect unique financial characteristics of each product group. Within each manufacturer group, DOE contacted companies from its database of manufacturers. Small and large companies, subsidiaries and independent firms, and12-9



### public and private corporations were interviewed to provide a representation of the industry. Interviews were scheduled well in advance to provide every opportunity for key individuals to be available for comment. Although a written response to the questionnaire was acceptable, DOE sought interactive interviews, which help clarify responses and identify additional issues. The resulting information provides valuable inputs to the GRIMs developed for the product classes.

12.2.3.2 Revised Industry Cash-Flow Analysis

In Phase II of the MIA, DOE provided manufacturers with preliminary GRIM input financial figures for review and evaluation. During the interviews, DOE requested comments on the values it selected for the parameters. DOE revised its industry cash-flow models based on

this feedback. Section 12.4.3 provides more information on how DOE calculated the parameters.

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 manufacturer subgroups. Small manufacturers and other manufacturers with a cost structure significantly different from the industry average could be more negatively affected. DOE uses the results of the industry characterization to group manufacturers exhibiting similar characteristics. During the interviews, DOE discussed the potential subgroups and subgroup members it identified for the analysis. DOE asked manufacturers and other interested parties to suggest what subgroups or characteristics are the most appropriate to analyze. As described in section 12.2.3

, DOE presents the industry impacts by the major product groupings covered in this rulemaking. These product groupings represent separate markets served by distinct manufacturers. As discussed below, DOE did not identify any small business manufacturers and therefore did not analyze a separate subgroup of small

business manufacturers.

12.2.3.4 Small-Business Manufacturer Subgroup

DOE used the Small Business Administration (SBA) small business size standards published on August 22, 2008, as amended, and the North American Industry Classification System (NAICS) code, presented in Table 12.2.1 , to determine whether any small entities would be affected by the rulemaking. a 

### For the product classes under review, the SBA bases its small business definition on the total number of employees for a business, its subsidiaries, and its parent companies. An aggregated business entity with fewer employees than the listed limit is

considered a small business.

a The size standards are available on the SBA’s website at www.sba.gov/idc/groups/public/documents/sba_homepage/serv_sstd_tablepdf.pdf.12-10



### Table 12.2.1 SBA and NAICS Classification of Small Businesses Potentially Affected by This Rulemaking
Industry Description Revenue Limit Employee Limit NAICS Household Laundry Equipment Manufacturing N/A 1000 335224

Air

- Conditioning and Warm Air Heating Equipment and Commercial and Industrial Refrigeration Equipment Manufacturing N/A 750 333415



### DOE used the Association of Home Appliance Manufacturers (AHAM) 3 

### member directory to identify manufacturers of residential clothes dryers and room air conditioners

. DOE also reviewed public certification databases including the California Energy Commission (CEC), 4 

### ENERGY STAR, 5 

### and other databases. DOE asked interested parties and industry representatives if they were aware of other small business manufacturers. Then, DOE consulted publicly available data, reports from vendors such as D&B, and manufacturers to determine

which manufacturers meet SBA’s definition of a small business.

During its research, DOE did not identify any residential clothes dryer or room air conditioner companies which manufacture products covered by this rulemaking and qualify as

small business es per the applicable SBA definition. This determination is detailed in section

12.6

. Because no manufacturers qualified as a small business, DOE did not analyze a separate subgroup of small business manufacturers for this NOPR.

12.2.3.5 Manufacturing Capacity Impact

One significant outcome of amended energy conservation standards could be the obsolescence of existing manufacturing assets, including tooling and investment. The manufacturer interview guides have a series of questions to help identify impacts of amended standards on manufacturing capacity, specifically capacity utilization and plant location decisions in the United States and North America, with and without amended standards; the ability of manufacturers to upgrade or remodel existing facilities to accommodate the new requirements; the nature and value of any stranded assets; and estimates for any one-time changes to existing plant, property, and equipment (PPE). DOE’s estimates of the one-time capital changes and stranded assets affect the cash flow estimates in the GRIMs. These estimates

can be found in section 12.4.8 ; DOE’s discussion of the capacity impact can be found in section

12.7.2

.

12.2.3.6 Employment Impact

The impact of amended energy conservation standards on employment is an important consideration in the rulemaking process. To assess how domestic direct employment patterns might be affected, the interviews explored current employment trends in the residential clothes dryer and room air conditioner industries. The interviews also solicited manufacturer views on changes in employment patterns that may result from more stringent standards. The employment impacts section of the interview guide focused on current employment levels associated with manufacturers at each production facility, expected future employment levels with and without amended energy conservation standards, and differences in workforce skills and issues related to the retraining of employees. The employment impacts are reported in section 12.7.1

.12-11



### 12.2.3.7 Cumulative Regulatory Burden

DOE seeks to mitigate the overlapping effects on manufacturers due to amended energy conservation standards and other regulatory actions affecting the same products. DOE analyzed the impact on manufacturers of multiple, product-specific regulatory actions. Based on its own research and discussions with manufacturers, DOE identified regulations relevant to residential clothes dryer and room air conditioner manufacturers, such as State regulations and other Federal

re gulations that impact other products made by the same manufacturers. Discussion of the cumulative regulatory burden can be found in section 12.7.3

.

12.3 MANUFACTURER IMPACT ANALYSIS KEY ISSUES

Each MIA interview starts by asking: “What are the key issues for your company regarding the energy conservation standard rulemaking?” This question prompts manufacturers to identify the issues they feel DOE should explore and discuss further during the interview. The following section describes key issues manufacturers mentioned for all product classes under

review.

12.3.1 Residential Clothes Dryers Key Issues

12.3.1.1 Test Procedure

Manufacturers indicated that a key concern for this rulemaking was ensuring that the test procedure accurately measured actual energy use. In particular, manufacturers indicated that proposed changes to the remaining moisture content value and the average number of annual cycles needed to be updated. Manufacturers indicated that without these changes, consumers could be negatively impacted by amended energy conservation standards because clothes dryers have a limited number of improvements that would be cost effective for most consumers.

12.3.1.2 Underwriters Laboratories (UL) Fire Containment Standard

Most manufacturers indicated that they had not fully investigated the exact technical changes that will be required to meet the UL fire containment regulation (UL 2158). However, manufacturers were concerned that this regulation would require changes to all their products around the same time that they would be required to meet amended energy conservation standard. Most manufacturers agreed that even if the exact approach of meeting UL 2158 is different or unknown by individual manufactures, DOE should still treat the regulation as an

overall burden.

12.3.1.3 Heat Pump Technology

Manufacturers indicated that the high capital conversion and product conversion costs for clothes dryers at the second gap fill levels or the maximum available units were significant and would represent a substantial burden. Manufacturers also indicated that the pathways to meeting those levels, while potentially costly, were well-defined, proven in the market, and could be made within their existing production facilities. Manufacturers also indicated, however, that heat pump technology at the max-tech levels for electric product classes would represent a significant departure from current products and add significantly to the product and capital conversion costs.12-12



### A heat pump standard would require a total renovation of existing facilities. The changes required to manufacture heat pumps would require revamping most existing production equipment and redesigning a new platform. The capital conversion costs would include equipment for new drum lines, assembly line testing equipment, stamping equipment for cabinets, and other production equipment to manufacturer the sealed systems. In addition to the large development costs to develop new platforms, manufacturers would have the additional expense of developing the sealed system. Other increases to the product development costs for head pump clothes dryers that concerned manufacturers were the significant retraining costs for their servicers and the marketing costs to educate consumers and ensure they accept the new technology. With the substantial change that would be required to develop, manufacture, and educate consumers about heat pump clothes dryers, manufacturers were concerned they might not be able to make all the required changes with a three year lead time between the announcement of the final rule and the compliance date of the amended energy conservation.

Manufacturers also indicated that an energy conservation standard at a level that effectively required a heat pump clothes dryer would force them to consider off-shoring any remaining production in the United States. Besides the significant capital and product conversion costs, manufacturers indicated that the much higher labor content of a heat pump clothes dryer would put additional pressure on moving production away from the United States. Finally, manufacturers believed that repair and maintenance costs would increase if an energy conservation standard effectively required heat pump clothes dryers. Repair and maintenance costs would increase due to the more expensive components, potential lint management problems, and some manufacturers’ inexperience with the technology.

12.3.1.1 Impacts on Profitability

Manufacturers indicated that the clothes dryer market would make profitability impacts likely under an amended energy conservation standard. Because there is currently no energy label requirement and no ENERGY STAR program for clothes dryers, manufacturers indicated that, unlike clothes washers, efficiency does not command any premium in the market (either in percentage or absolute terms). Because it is difficult to communicate any energy benefit to consumers, it is very unlikely that they could benefit from higher production costs caused by amended energy conservation standards.

In addition, manufacturers indicated that the large incremental cost jumps at some of the higher efficiency levels, including heat pump clothes dryers, were unlikely to be fully passed on to their customers. Beside the inability to show the energy benefit of the products, manufacturers indicated that the concentrated number of players in the retail market would put pressure on all manufacturers to keep costs down in response to amended energy conservation standards. Manufacturers also indicated that many of their sales are from pairs of clothes washers and dryers that have similar price points. If the cost of clothes dryers increased, manufacturers felt that retailers would not accept any price increase to keep the retail prices of the matched pair

similar.12-13



### 12.3.2 Room Air Conditioners Key Issues

12.3.2.1 Impact on Manufacturer Profitability

Several manufacturers stated that they expect amended energy conservation standards to negatively impact the profitability of room air conditioners. Higher component, tooling, and development costs for more efficient products would increase manufacturer production costs, but manufacturers believed these higher costs could not necessarily be passed on to consumers due to the nature of the industry. A few large retailers dominate the industry and exert downward pressure on prices. Retailers demand low prices because consumers have come to expect room air conditioners at particular price points; for example, consumers expect many product offerings of product class 1 for under $100 and retailers have successfully maintained that price point through competitive bidding. This has resulted in price pressure on the most popular units as manufacturers accept lower absolute profit on those units in the hopes of making a larger per unitprofit on other more costly products. Many room air conditioner purchases are weatherdependent, so consumers could easily forgo the purchase of a room air conditioner unit altogether if prices increased. Consequently, manufacturers believed that cost increases would be at least partly absorbed by manufacturers to keep retail prices from rising sharply.

If amended energy conservation standards led to a significant reduction in profitability, some manufacturers could exit the market (as a number of large players have in recent years). Many manufacturers source room air conditioner lines from overseas and do not own the production equipment. This arrangement would allow manufacturers to exit the industry without

stranded assets.

12.3.2.2 Impact on Product Utility

Manufacturers believed a negative profitability impact could also indirectly affect product utility. Several manufacturers indicated that other features that do not affect efficiency could be removed or component quality could be sacrificed to meet amended standard levels and maintain product prices at levels that would be acceptable to consumers.

Manufacturers also expressed concern that the energy savings from more stringent energy conservation standards would not be great enough to justify passing through the added costs to consumers. Currently, manufacturers bundle higher efficiency with other desirable features to justify higher prices for ENERGY STAR models. According to manufacturers, if amended standards caused prices to increase, the lower operating costs would not justify higher prices because the energy savings would be low compared to the initial price of the unit. Therefore, the increased cost of meeting the amended efficiency requirements may cause manufacturers to reduce the number of features to retain a reasonable price point.

The value of future ENERGY STAR levels is also a concern for manufacturers. Many retailers and other distribution channels require ENERGY STAR products. Because the features bundled with ENERGY STAR products are the selling point to consumers, manufacturers were concerned that a higher ENERGY STAR level after amended standards would result in products

with fewer features.12-14



### Manufacturers also stated that the financial burden of developing products to meet amended energy conservation standards has an opportunity cost due to limited capital and R&D dollars. Investments incurred to meet amended energy conservation standards reflect foregone investments in innovation and the development of new features that consumers value and on which manufacturers earn higher absolute profit.

12.3.2.3 Component Availability

Several manufacturers stated they were concerned about component availability. Compressor availability since the conversion to R-410A was the main problem cited by manufacturers. Some manufacturers stated that component suppliers do not give priority to room air conditioning because the market is exclusive to North America and smaller than some of the other markets they supply. Since the conversion R-410A, manufacturers noted the total production capacity of compressor suppliers has not fully rebounded. In addition, compressor suppliers have yet to offer the same range of compressor capacities and efficiency tiers.

12.3.2.4 Size Constraints

A number of manufacturers expressed concerns about physical limitations of how large room air conditioners could grow. Most residential buildings have standardized window openings. Because a large portion of air conditioners are installed in these standardized openings, products must still fit in these typical windows after they have been redesigned. Manufacturers were largely concerned that the limited opportunity for growth also limited opportunities for efficiency improvements. Increasing the size of units also presents a problem for smaller air conditioners, typically under 10,000 Btu/hr, since much of their appeal is that these units can be lifted and installed by one person. Increasing the size of these units would greatly alter the market and may move consumers to less efficient portable air-conditioning units.

Manufacturers mentioned refrigerant charge as another reason why room air conditioners are constrained by size. If manufacturers used increased coil size and a smaller compressor capacity to improve efficiency, the larger heat exchangers combined with the reduced nominal compressor capacity could lead to a system refrigerant charge amount that exceeds the recommended level. Exceeding recommended charge levels could damage the compressor, thereby limiting the extent of efficiency improvements associated with coil size growth. To counteract the increase in charge, some manufacturers have used smaller tubing in their heat exchangers, but North American suppliers are not currently equipped properly to support smaller tube sizes and might not be willing to make the investment required to do so.

Several manufacturers stated that size is also a concern because moving from a smaller chassis to larger chassis would cause material costs to increase dramatically due to more costly components and the potential capital costs required for development. If the adopted standards required significant rather than incremental increases in efficiency, the largest units in each capacity range would likely have to move to the next largest or a new chassis in order to meet the required efficiency levels. This is a notable concern for capacities above 28,000 Btu/hr because manufacturers could choose to no longer offer these product lines due to the conversion cost.12-15



### Numerous manufacturers stated that size constraints pose a problem for non-louvered units in particular. Non-louvered units inherently have less room for efficiency improvement because they need to fit into the existing sleeves in buildings. They are also constrained by air flow, increasing the depth does not result in significant efficiency gains because air on the condenser side must still flow through the rear face. Additionally, increasing depth creates a product that is less aesthetically pleasing and could decrease the available space in the room.

12.3.2.5 Product Switching

Some manufacturers noted that higher consumer prices after an amended energy conservation standard could result in product switching along the upper capacity boundaries of a product class if efficiency requirements are not implemented proportionally across product classes. For example, if the first cost of units in product class 1 after amended energy conservation standards is not proportionally lower than units in product class 3, this lack of price disparity would drive consumers who would have purchased product class 1 units to purchase less efficient, slightly higher capacity units in product class 3. Without a significant price differential between product classes, consumers would be more likely to buy units with higher capacity, potentially lowering the calculated energy savings.

12.4 GRIM INPUTS AND ASSUMPTIONS

The GRIM serves as the main tool for assessing the impacts on industry due to amended energy conservation standards. DOE relies on several sources to obtain inputs for the GRIM. Data and assumptions from these sources are then fed into an accounting model that calculates the industry cash flow both with and without amended energy conservation standards.

12.4.1 Overview of the GRIM

The basic structure of the GRIM, illustrated in Figure 12.4.1 , is an annual cash flow analysis that uses manufacturer prices, manufacturing costs, shipments, and industry financial information as inputs, and accepts a set of regulatory conditions such as changes in costs, investments, and associated margins. The GRIM spreadsheet uses a number of inputs to arrive at a series of annual cash flows, beginning with the base year of the analysis, 2011, and continuing

to 2043 . The model calculates the INPV by summing the stream of annual discounted cash flows during this period. 612-16



### Figure 12.4.1 Using the GRIM to Calculate Cash Flow

The GRIM projects cash flows using standard accounting principles and compares changes in INPV between the base-case and the standard-case scenario induced by amended energy conservation standards. The difference in INPV between the base case and the standard case(s) represents the estimated financial impact of the amended energy conservation standard on manufacturers. Appendix 12 -B provides more technical details and user information for the

GRIM.

12.4.2 Sources for GRIM Inputs

The GRIM uses several different sources for data inputs in determining industry cash flow. These sources include corporate annual reports, company profiles, Census data, credit ratings, the shipments model, the engineering analysis, and the manufacturer interviews.

12.4.2.1 Corporate Annual Reports

Corporate annual reports to the SEC (SEC 10-Ks) provided many of the financial inputs to the GRIM. These reports exist for publicly held companies and are freely available to the general public. DOE developed initial financial inputs to the GRIM by examining the annual SEC 10-K reports filed by publicly-traded manufacturers primarily engaged in home appliances and whose combined product range includes residential clothes dryers and room air conditioners

. Because these companies produce a range of different products, DOE initially assumed that the industry average figures calculated for these companies were representative of manufacturing for both residential clothes dryers and room air conditioners. Since these companies do not provide detailed information about their individual product lines, DOE used the financial information for the entire companies as its initial estimates of the financial parameters in both GRIM analyses

. These figures were later revised using feedback from interviews to be representative of manufacturing for each product. DOE used corporate annual reports to derive the following initial inputs to the GRIM:

• Tax rate • Working capital

• SG&A

• R&D12-17



### • Depreciation • Capital expenditures

• Net PPE

12.4.2.2 Standard and Poor Credit Ratings

S&P provides independent credit ratings, research, and financial information. DOE relied on S&P reports to determine the industry’s average cost of debt when calculating the cost of capital.

12.4.2.3 Shipment Model

The GRIM used shipment projections derived from DOE’s shipments model in the national impact analysis (NIA). The model relied on historical shipments data for residential clothes dryers and room air conditioners. Chapter 10 of the TSD describes the methodology and analytical model DOE used to forecast shipments.

12.4.2.4 Engineering Analysis

During the engineering analysis, DOE used a manufacturing cost model to develop manufacturer production cost (MPC) estimates for residential clothes dryers and room air conditioners. The analysis provided the labor, materials, overhead, and total production costs for products at each efficiency level. The engineering analysis also estimated a manufacturer markup to provide the manufacturer selling price (MSP) for each product at every efficiency level

.

12.4.2.5 Manufacturer Interviews

During the course of the MIA, DOE conducted interviews with a representative crosssection of manufacturers. DOE also interviewed manufacturers representing a significant portion of sales in every product class. During these discussions, DOE obtained information to determine and verify GRIM input assumptions in each industry. Key topics discussed during the interviews

and reflected in the GRIM include:

• capital conversion costs (one-time investments in PPE);

• product conversion costs (one-time investments in research, product development, testing, and marketing);

• product cost structure, or the portion of the MPCs related to materials, labor, overhead, and depreciation costs;

• projected total shipment and shipment distribution mix; and • MPCs estimated in the engineering analysis.

12.4.3 Financial Parameters

In the manufacturer interviews, DOE used the financial parameters from the April 2009 cooking products final rule and the January 2010 commercial clothes washers final rule b 

### as a

b The final rule for commercial clothes washers was published in the Federal Register on January 8, 2010 (75 FR1122). The final rule for cooking products was published in the Federal Register on April 8, 2009 (74 FR 16040).12-18



### starting point for determining the residential clothes dryer and room air conditioner industry financial parameters. These initial estimates were used because many of the same white goods manufacturers produce clothes washers, cooking products, clothes dryers, and room air conditioners, and no other publicly available SEC 10-K reports for clothes dryer or room air conditioner manufacturers were available. These financial parameters were determined by averaging the values in the annual reports of three publicly traded companies engaged in manufacturing and selling clothes washers over an 8-year period (1999-2006). Table 12.4.1 below shows the data used to determine the initial financial parameter estimates.

Table 12.4.1 GRIM Financial Parameters Based on 1999–2006 Weighted Company

Financial Data

Parameter Industry

Weighted Average Manufacturer

A B C

Tax Rate (% of Taxable Income) 33.9 6.6 34.1 34.5 Working Capital (% of Revenue) 2.9 9.6 5.6 2.0

SG&A (% of Revenue) 12.5 12.7 12.3 13.2

R&D (% of Revenues) 2. 2 2.3 2.0 2.4 Depreciation (% of Revenues) 3.4 3.9 3.4 3.3 Capital Expenditures (% of Revenues) 3.5 1.9 3.4 3.6 Net Property, Plant, and Equipment (% of Revenues) 19.9 17.3 21.6 19.4



### During interviews, manufacturers were asked to provide their own figures for the parameters listed in Table 12.4.1

. DOE did not receive feedback from either clothes dryer or room air conditioner manufacturers that indicated that the financial parameters in either GRIM should be adjusted. Therefore, DOE used the same financial parameters for both the residential clothes dryer and room air conditioner industries consistent with those shown in Table 12.4.1

12.4.4 Corporate Discount Rate

DOE used the weighted-average cost of capital (WACC) as the discount rate to calculate the INPV. A company’s assets are financed by a combination of debt and equity. The WACC is the total cost of debt and equity weighted by their respective proportions in the capital structure of the industry. DOE estimated the WACC for the clothes dryer and room air conditioner industries based on several representative companies, using the following formula:

WACC = After-Tax Cost of Debt x (Debt Ratio) + Cost of Equity x (Equity Ratio) Eq. 1

The cost of equity is the rate of return that equity investors (including, potentially, the company) expect to earn on a company’s stock. These expectations are reflected in the market price of the company’s stock. The capital asset pricing model (CAPM) provides one widely used means to estimate the cost of equity. According to the CAPM, the cost of equity (expected return) is:

More information on these rulemakings can be found at http://www1.eere.energy.gov/buildings/appliance_standards/commercial/clothes_washers.html and http://www1.eere.energy.gov/buildings/appliance_standards/residential/cooking_products.html.12-19



### Cost of Equity = Riskless Rate of Return + β x Risk Premium Eq. 2

where:

Riskless rate of return is the rate of return on a “safe” benchmark investment, typically considered the short-term Treasury Bill (T-Bill) yield.

Risk premium is the difference between the expected return on stocks and the riskless

rate.

Beta (β) is the correlation between the movement in the price of the stock and that of the broader market. In this case, Beta equals one if the stock is perfectly correlated with the S&P 500

market index. A Beta lower than one means the stock is less volatile than the market index.

DOE determined that the industry average cost of equity for the clothes dryer and room air conditioner industries is 17.9 percent ( Table 12.4.2 ). The representative data was taken from the commercial clothes washers final rule since several of the representative manufacturers are the same as in the residential clothes dryer and room air conditioner industries.

Table 12.4.2 Cost of Equity Calculation

Parameter Industry

Weighted Average

% Manufacturer

A B C

(1) Average Beta (2002

- 2006 year) 1.31 1.0* 1.77 1.17

(2) Yield on 10

- Year

T

- Bill (1990

- 2006) 5.9

- - -
(3) Market Risk Premium (1926

- 1999) 9.2

- - - Cost of Equity (2)+[(1)*(3)] 17.9

- - - Equity/Total Capital 37.2 23.7

- 49.8 64.6

* Estimated Beta



### Bond ratings are a tool to measure default risk and arrive at a cost of debt. Each bond rating is associated with a particular spread. One way of estimating a company’s cost of debt is to treat it as a spread (usually expressed in basis points) over the ri sk -free rate. DOE used this method to calculate the cost of debt for all three manufacturers by using S&P ratings and adding the relevant spread to the risk-free rate.

In practice, investors use a variety of different maturity Treasury bonds to estimate the risk-free rate. DOE used the 10-year Treasury bond return because it captures long-term inflation expectations and is less volatile than short-term rates. The risk free rate is estimated to be approximately 6 percent, which is the average 10-year Treasury bond return between 1990 and

200 6 (the analysis period used in the initial estimate for commercial clothes washers).

For the cost of debt, S&P’s Credit Services provided the average spread of corporate bonds for the three public manufacturers between 2002 and 2006

. As stated above, the representative data was taken from the commercial clothes washers final rule since several of the12-20



### representative manufacturers are the same as in the clothes dryer and room air conditioner

industries. DOE added the indust ry -weighted average spread to the average T-Bill yield over the same period. Since proceeds from debt issuance are tax deductible, DOE adjusted the gross cost of debt by the industry average tax rate to determine the net cost of debt for the industry. Table

12.4.3 presents the derivation of the cost of debt and the capital structure of the industry ( i.e. the debt ratio (debt/total capital)).

Table 12.4.3 Cost of Debt Calculation

Parameter Industry

Weighted Average

% Manufacturer

A B C

S&P Bond Rating

-- B

- BBB BBB

(1) Yie ld on 10

- Year

T

- Bill (1990

- 2006) 5.9

- - -

(2) Gross Cost of Debt 8.2 13.9 8.1 8.1

(3) Tax Rate 34 6.6 34.1 34.5

Net Cost of Debt (2) x ((1)

- (3)) 5.4

- - -

Debt/Total Capital 62.8 76.3 149.8 35.4



### Using public information for these three companies from the commercial clothes washers final rule, the initial estimate for the clothes dryer and room air conditioner industries’ WACC was approximately 10.1 percent. Subtracting an inflation rate of 2.9 percent over the analysis period used in the initial estimate, the inflation-adjusted WACC and the initial estimate of the discount rate used in the straw-man GRIM is 7.2 percent. DOE also asked for feedback on the 7.2 percent discount during manufacturer interviews and used this feedback to determine that 7.2 percent was an appropriate discount rate for use in the GRIM for both residential clothes dryers

and room air conditioners.

12.4.5 Trial Standard Levels

DOE developed TSLs for residential clothes dryers and room air conditioners. For residential clothes dryers, DOE analyzed all six product classes. For room air conditioners, consistent with the engineering analysis, DOE analyzed six representative product classes that
represent over 75 percent of shipments. These representative product classes are product class 1 (w it hout reverse cycle and with louvered sides - less than 6,000 Btu/h), product class 3 (without reverse cycle and with louvered sides - 8,000 to 13,999 Btu/h), product class 5A (without reverse cycle and with louvered sides - 20,000 to 24,999 Btu/h), product class 5B (without reverse cycle and with louvered sides - 25,000 Btu/h and more), product class 8A (without reverse cycle and without louvered sides - 8,000 to 10,999 Btu/h), and product class 8B (without reverse cycle and without louvered sides - 11,000 to 13,999 Btu/h ). DOE extrapolates the amended energy standards to the remaining product classes c 

### as described chapter 2 of the TSD. Table 12.4.4 through Table 12.4.5 present the efficiency levels at each TSL used in each GRIM.

c The remaining product classes are product class 2 (without reverse cycle and with louvered sides - 6,000 to 7,999 Btu/h), product class 4 (without reverse cycle and with louvered sides - 14,000 to 19,999 Btu/h), product class 612-21



### Table 12.4.4 presents the TSLs and the corresponding product class efficiency levels for clothes dryers. For all clothes dryer TSLs, DOE analyzed efficiency improvements using combined energy factor (CEF). The CEF measurements use the test procedure final rule published in 2010, which incorporated several changes for measuring standby power, changes that affect the active mode efficiency (such as cycles per year, load size, remaining moisture content, etc.), and added additional product classes included in this direct final rule. DOE’s test procedure for clothes dryers appears at 10 CFR part 430, subpart B, appendix D. TSL 1 consists of the efficiency levels with the largest market share with a positive NPV (at a 3-percent discount rate). TSL 2 consists of the efficiency levels with the highest NPV (at a 3-percent discount rate). TSL 3 consists of the efficiency levels with the highest energy savings and a positive NPV (at a 3-percent discount rate). TSL 4 consists of the efficiency levels that reflect 5-percent efficiency increase above the baseline. TSL 4 also corresponds to the standards recommended by the Joint

Petitioners

. TSL 5 consists of non heat pump design efficiency levels with the highest energy savings. TSL 6 consists of the max-tech efficiency levels. DOE shows the design options (for both standby power and active mode efficiency) in section 12.4.8 where it describes the design options analyzed to reach each CEF analyzed.

Table 12.4.4 Trial Standard Levels for Clothes Dryers

Product Class TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6

CEF

Product Class 1

- Vented Electric

Standard 3.56 3.61 3.73 3.73 4.08 5.42

Product Class 2

- Vented Electric Compact 120V 3.43 3.61 3.61 3.61 4.08 5.41

Product Class 3

- Vented Electric Compact 240V 3.12 3.27 3.27 3.27 3.60 4.89

Product Class 4

- Vented Gas 3.16 3.20 3.20 3.30 3.61 3.61

Product Class 5

- Vent

- less Electric Compact 240V 2.55 2.69 2.69 2.55 2.80 4.03

Product Class 6

- Vent

- less Electric Combination Washer/Dryer 2.08 2.56 2.56 2.08 2.56 3.69



### Table 12.4.5 presents the TSLs and the corresponding product class efficiency levels for room air conditioners. For all room air conditioner TSLs, DOE analyzed efficiency improvements using combined energy efficiency ratio (CEER). The CEER measurements use the test procedure final rule published in 2010, which incorporated several changes for measuring standby power

. DOE’s test procedure for room air conditioners appears at 10 CFR part 430, subpart B, appendix F

. TSL 1 consists of the efficiency levels with the largest market share with a positive NPV (at a 3-percent discount rate). TSL 2 consists of the ENERGY STAR levels for each product class. TSL 3 consists of the efficiency levels with the highest NPV (at a 3-percent discount rate). TSL 4 consists of the efficiency levels set forth in the Joint Petition presented to

(w ithout reverse cycle and without louvered sides - less than 6,000 Btu/h), product class 7 (without reverse cycle and without louvered sides - 6,000 to 7,999 Btu/h), product class 9 (without reverse cycle and without louvered sides - 14,000 to 19,999 Btu/h), product class 10 (without reverse cycle and without louvered sides - 20,000 Btu/h and more), product class 11 (with reverse cycle and with louvered sides - less than 20,000 Btu/h), product class 12 (w ith reverse cycle and with louvered sides - 20,000 Btu/h and more), prduct class 13 (with reverse cycle and without louvered sides - less than 14,000 Btu/h), product class 14 (with reverse cycle and without louvered sides - 14,000

Bt u/h and more), product class 15 (casement only), and product class 16 (casement slider ),12-22



### DOE. TSL 5 consists of the efficiency levels with the highest energy savings and a positive NPV (at a 7-percent discount rate). TSL 6 consists of the max-tech efficiency levels. DOE shows the design options (for both standby power and active mode efficiency) in section 12.4.8 where it describes the design options analyzed to reach each CEER analyzed.

Table 12.4.5 Trial Standard Levels for Room Air Conditioners

Product Class TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6

CEER Group 1

– includes PC 1 10.10 10.60 10.10 11.10 11.10 11.67 Group 2

– includes PC 2, 3, 4, 11 10.70 10.70 10.90 10.90 11.50 11.96 Group 3

– includes PC 5A , 9, 13 9.40 9.40 8.47 9.40 8.47 10.15 Group 4

– includes PC 5B , 10 9.40 9.40 8.48 9.00 8.48 9.80 Group 5

– includes PC 6, 7, 8A , 12 9.30 9.30 9.60 9.60 10.00 10.35 Group 6

– includes PC 8B , 14, 15, 16 9.30 9.30 9.50 9.50 9.50 10.02



### 12.4.6 NIA Shipment Forecast

The GRIM estimates manufacturer revenues based on total-unit-shipment forecasts and the distribution of these values by efficiency level. Changes in the efficiency mix at each standard level are a key driver of manufacturer finances. For this analysis, the GRIM used the NIA shipments forecasts from 2009 to 2043 for residential clothes dryers and room air conditioners. However, only the shipments in 2011 and after have an impact on INPV because

2011 is the base year to which future cash flows are summed. Chapter 10 of the TSD explains DOE’s calculations of total shipments in detail. Table 12.4.6 shows total shipments forecasted in the shipment analysis for residential clothes dryers in 2014 ; Table 12.4.7 shows forecasted shipments for room air conditioners in 2014

.

Table 12.4.6 Total NIA Shipments Forecast in 2014 in the Main NIA Shipment Scenario d


### (Residential Clothes Dryers)

Product Class Total Industry Shipments

Product Class 1

- Electric Standard Vented Dryers 6

, 085

, 810

Product Class 2

- Electric Compact Vented Dryers (120V) 13

, 155

Product Class 3

- Electric Compact Vented Dryers (240V) 59,196

Product Class 4

- Gas Vented Dryers 1,688,617

Product Class 5

- Electric Compact (240V) Ventless Dryers 3 4,212

Product Class 6

- Electric Combination Ventless Dryers 3 4,212

d The estimated compliance date for the residential clothes dryer energy conservation standard is estimated to be January 2014.12-23



### Table 12.4.7 Total NIA Shipments Forecast in 2014 e 

### (Room Air Conditioners)

Product Class Total Industry Shipments
Group 1

– includes PC 1 2

, 797

, 588 Group 2

– includes PC 2, 3, 4, 11 5

, 195

, 683 Group 3

– includes PC 5A, 9, 13 186

, 784 Group 4

– includes PC 5B, 10 122

, 237 Group 5

– includes PC 6, 7, 8A, 12 431

, 954 Group 6

– includes PC 8B, 14, 15, 16 383

, 763



### 12.4.6.1 Base Case Shipments Forecast

As part of the shipment analysis, DOE estimated the shipment distribution by efficiency level for residential clothes dryers and room air conditioners

. For clothes dryers, DOE held the base-case energy efficiency distribution constant throughout the forecast period. Table 12.4.8 shows the base case distributions of shipments by efficiency level estimated in the NIA for the clothes dryer product classes.

Table 12.4.8 Base-Case Distribution of Efficiencies for Residential Clothes Dryers in 2014

Product Class Baseline EL 1 EL 2 EL 3 EL 4 EL 5 EL 6

Product Class 1

- Electric Standard Vented Dryers CEF 3.55 3.56 3.61 3.73 3.81 4.08 5.42

% of the

Market at EL 2.6% 18.9% 53.5% 17.9% 6.1% 1.0% 0.0%

Product Class 2

- Electric Compact Vented Dryers (120V) CEF 3.43 3.48 3.61 3.72 3.80 4.08 5.41

% of the

Market at EL 100.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Product Class 3

- Electric Compact Vented Dryers (240V) CEF 3.12 3.16 3.27 3.36 3.48 3.60 4.89

% of the

Market at EL 59.4% 0.0% 15.6% 16.7% 4.2% 4.2% 0.0%

Product Class 4

- Gas Vented Dryers CEF 3.14 3.16 3.20 3.30 3.42 3.61

% of the

Market at EL 7.9% 8.2% 42.9% 30.9% 9.3% 0.9%

Product Class 5

- Electric Compact (240V) Ventless Dryers CEF 2.55 2.59 2.69 2.71 2.80 4.03

% of the

Market at EL 100.0% 0.0% 0.0% 0.0% 0.0% 0.0%

Product Class 6

- Electric Combination Ventless Dryers CEF 2.08 2.35 2.38 2.46 2,56 3.69

% of the

Market at EL 100.0% 0.0% 0.0% 0.0% 0.0% 0.0%



### For the room air conditioner industry, DOE assumed a migration of the market toward higher efficiency over time. As such, the base case efficiency distribution is not held constant throughout the forecast period. However, Table 12.4.9 below provides a snapshot of the base case distributions of shipments by efficiency level estimated in the NIA for the representative room air conditioner product classes in 2014, the year the amended energy conservation

standards take effect.

e The estimated compliance date for the room air conditioners energy conservation standard is estimated to be January 2014.12-24



### Table 12.4.9 Base-Case Distribution of Efficiencies for Room Air Conditioners in 2014

Product Class Baseline EL 1 EL 2 EL 3 EL 4 EL 5

Group 1

– includes PC 1 CEER 9.52 10.10 10.60 11.10 11.38 11.67

% of the

Market at EL 69.3% 0.0% 29.5% 1.2% 0.0% 0.0%

Group 2

– includes PC 2, 3, 4, 11 CEER 9.69 10.20 10.70 10.90 11.50 11.96

% of the

Market at EL 37.1% 2.5% 58.3% 1.4% 0.3% 0.5%

Group 3

– includes PC 5A, 9, 13 CEER 8.47 9.00 9.40 9.80 10.15

% of the

Market at EL 13.2% 1.5% 81.3% 1.9% 2.1%

Group 4

– includes PC 5B, 10 CEER 8.48 9.00 9.40 9.80

% of the

Market at EL 12.5% 2.3% 85.3% 0.0%

Group 5

– includes PC 6, 7, 8A,

12 CEER 8.41 9.30 9.60 10.00 10.35

% of the

Market at EL 10.1% 64.8% 19.5% 3.7% 1.9%

Group 6

– includes PC 8B, 14, 15,

16 CEER 8.44 9.30 9.50 9.80 10.02

% of the

Market at EL 10.1% 59.3% 13.3% 17.3% 0.0%



### 12.4.6.2 Standards Case Shipments Forecast

To examine the effects of amended energy conservation standards on shipments, which affect the INPV, DOE used the base case shipments described in the previous section. For the standards case, DOE used the shipments developed in the NIA for clothes dryers and room air conditioners. For clothes dryers, DOE used a roll-up scenario to determine efficiency distributions for the standards case. In this scenario, products that fall below the amended energy conservation standard are assumed to “roll-up” to the new standard in 2014. DOE also assumed there was a relative price elasticity in the clothes dryers market, meaning amended energy conservation standards that increase the first cost of clothes dryers would result in lower total shipments.

For room air conditioners, the base case shipments assume that there is a migration over time to more efficient products based on historical trends of penetration of ENERGY STAR products. In the standards case, DOE used a “roll-up + shift” scenario. In this scenario, DOE assumed that amended standards for room air conditioners would likely result in changes to ENERGY STAR levels that would increase the share of products with energy efficiency above the standard. DOE also assumed there was a relative price elasticity in the room air conditioner market, meaning that amended energy conservation standards that increase the first cost of room air conditioners would result in lower total shipments.

12.4.7 Production Costs

Manufacturing a higher-efficiency product is typically more costly than manufacturing a baseline product due to the use of more complex components and higher-cost raw materials. The changes i n the MPC s of the analyzed products can affect revenues

, gross margins, and cash flow of the industry, making these data a key GRIM input for DOE’s analysis.12-25



### For the MIA, DOE used the cost-efficiency curves derived in the engineering analysis (detailed in chapter 5 and appendix 5-A of the TSD) for the year 2009 using appropriate production volume estimates. For instance, more efficient products sold under existing energy conservation standards are manufactured at lower production volumes than baseline efficiency products. Enacting more stringent energy conservation standards will increase production

vo lumes of more efficient units. For clothes dryers, one cost-efficiency curve was developed for each product class. The same is true for each of the six representative room air conditioner product classes, with the exception of product class 3, for which two cost-efficiency curves were developed and averaged.

To develop the cost-efficiency curves for clothes dryers, DOE performed detailed product teardowns and cost modeling on several clothes dryer models spanning a range of efficiencies

. These cost-efficiency relationships were compared to AHAM data and manufacturer feedback for validation. DOE also conducted standby power testing, as well as detailed energy performance testing at an independent laboratory to gain insights into energy performance in active, standby, and off modes, and disaggregated energy use of components and subsystems.

To develop the cost-efficiency curves for room air conditioners, in the absence of industry-supplied data, DOE conducted energy modeling analysis of the products obtained for reverse engineering analysis, product designs for R-410A refrigerant based on the reverse engineering products, and product designs using R-410A that incorporate energy-saving design options. The manufacturing cost model developed in conjunction with the reverse-engineering work was used to determine the incremental costs associated with the high-efficiency product designs evaluated in the energy modeling in order to allow development of cost-efficiency relationships for products using R-410A refrigerant. DOE supplemented these analyses with product testing at an independent laboratory and manufacturer interviews.

The GRIM also included the proportion of costs devoted to labor, materials, overhead, and depreciation that make up the full cost of production or MPCs for 2009. DOE estimated the proportion of costs associated with each cost category by using information from the engineering analysis. DOE used the same percentages for material, labor, and total overhead (depreciation and factory overhead) from the engineering analysis. For the MPC breakdown in the MIA, DOE used a depreciation value that is consistent with historical information in SEC 10-Ks. The remainder of total overhead was allocated to factory overhead. To calculate the incremental MPCs for products above the baseline, DOE added the incremental material, labor, and overhead costs from the engineering cost-efficiency curves to the baseline MPCs.

As discussed in the engineering analysis, the MSP is comprised of production costs (the direct manufacturing costs or MPCs), non-production costs (indirect costs like SG&A), and profit. The 2009 MSPs for residential clothes dryers are calculated by multiplying the 2009 MPCs by the appropriate manufacturer markup for that product. For room air conditioners, the

2009 MSP also includes shipping costs in addition to the 2009 MPC multiplied by the manufacturer markup.

Table 12.4. 10 through Table 12.4. 21 show the production cost estimates for 2009 used in the GRIM for the representative product classes for residential clothes dryers and room air

conditioners

.12-26



### Clothes Dryers Production Cost Estimates

Table 12.4. 10 MPC Breakdown for Product Class 1 in 2009 - Electric Standard Vented Dryers

TSL (Efficiency Level) CEF Labor $ Material

$ Overhead

$ Depreciation

$ MPC

$ M fr. Markup MSP

$

Baseline 3.55 23.86 147.86 21.11 8.63 201.46 1.26 253.84 TSL 1 (EL 1) 3.56 23.86 148.54 21.08 8.66 202.14 1.26 254.70 TSL 2 (EL 2) 3.61 23.86 148.68 21.07 8.67 202.27 1.26 254.86 TSL 3, TSL 4 (EL 3) 3.73 28.78 147.39 25.02 9.00 210.20 1.26 264.85

TSL 5 (EL 5) 4.08 36.01 212.33 29.58 12.44 290.35 1.26 365.84 TSL 6 (EL 6) 5.42 61.43 358.74 41.18 20.65 482.00 1.26 607.32



### Table 12.4. 11 MPC Breakdown for Product Class 2 in 2009 -Electric Compact Vented Dryers (120V)

TSL (Efficiency Level) CEF Labor $ Material

$ Overhead

$ Depreciation

$ MPC

$ M fr. Markup MSP

$

Baseline , TSL 1 (Baseline) 3.43 25.62 101.69 74.21 9.02 210.54 1.26 265.28

TSL 2, TSL 3, TSL 4 (EL 2) 3.61 25.62 102.50 74.17 9.05 211.35 1.26 266.31

TSL 5 (EL 5) 4.08 39.49 165.56 101.10 13.70 319.85 1.26 403.01 TSL 6 (EL 6) 5.41 60.84 299.02 97.68 20.48 478.01 1.26 602.30



### Table 12.4. 12 MPC Breakdown for Product Class 3 in 2009 - Electric Compact Vented Dryers (240V)

TSL (Efficiency Level) CEF Labor $ Material

$ Overhead

$ Depreciation

$ MPC

$ M fr. Markup MSP

$

Baseline , TSL 1 (Baseline) 3.12 25.62 101.69 74.21 9.02 210.54 1.26 265.28

TSL 2, TSL 3, TSL 4 (EL 2) 3.27 25.62 102.50 74.17 9.05 211.35 1.26 266.31

TSL 5 (EL 5) 3.60 39.49 165.56 101.10 13.70 319.85 1.26 403.01 TSL 6 (EL 6) 4.89 60.84 299.02 97.68 20.48 478.01 1.26 602.3012-27



### Table 12.4. 13 MPC Breakdown for Product Class 4 in 2009 - Gas Vented Dryers

TSL (Efficiency Level) CEF Labor $ Material

$ Overhead

$ Depreciation

$ MPC

$ M fr. Markup MSP

$

Baseline 3.14 27.00 165.78 24.88 9.74 227.40 1.26 286.52 TSL 1 (EL 1) 3.16 27.00 166.46 24.85 9.77 228.08 1.26 287.38

TSL 2 , TSL 3 (EL 2) 3.20 27.00 166.59 24.85 9.78 228.22 1.26 287.55

TSL 4 (EL 3) 3.30 30.06 170.25 26.08 10.13 236.52 1.26 298.02

TSL 5 , TSL 6 (EL 5) 3.61 37.46 255.16 30.30 14.45 337.38 1.26 425.10



### Table 12.4. 14 MPC Breakdown for Product Class 5 in 2009 - Electric Compact (240V) Ventless Dryers

TSL (Efficiency Level) CEF Labor $ Material

$ Overhead

$ Depreciation

$ MPC

$ M fr. Markup MSP

$

Baseline , TSL 1, TSL 4 (Baseline) 2.55 60.57 175.42 299.36 23.96 559.31 1.26 704.73

TSL 2, TSL 3 (EL 2) 2.69 60.57 176.53 299.31 24.01 560.42 1.26 706.12

TSL 5 (EL 4 ) 2.80 67.23 201.94 321.49 26.44 617.11 1.26 777.55 TSL 6 (EL 5 ) 4.03 94.98 349.36 322.98 34.34 801.67 1.26 1,010.10



### Table 12.4. 15 MPC Breakdown for Product Class 6 in 2009 - Electric Combination Ventless Dryers

TSL (Efficiency Level) CEF Labor $ Material

$ Overhead

$ Depreciation

$ MPC

$ M fr. Markup MSP

$

Baseline , TSL 1, TSL 4 (Baseline) 2.08 87.83 322.21 361.34 34.52 805.90 1.26 1,015.44

TSL 2, TSL 3, TSL 5 (EL 4) 2.56 89.52 348.66 363.53 35.88 837.59 1.26 1,055.36

TSL 6 (EL 5 ) 3.69 126.09 527.62 402.46 47.27 1,103.44 1.26 1,390.33



### Room Air Conditioner Production Cost Estimates12-28



### Table 12.4. 16 MPC Breakdown for Product Class 1 in 2009 - Room Air Conditioners without Reverse Cycle and with Louvered Sides - Less than 6,000 Btu/h

TSL (Efficiency Level) CEER Labor $ Mat l.

$ Overhead

$ Depr

.

$ MPC

$ Shipping

$ M fr. Markup MSP

$

Baseline 9.5 22.43 99.88 21.16 6.42 149.89 3.86 1.26 192.73 TSL 1, TSL 3 (EL 1) 10.1 23.11 104.34 22.07 6.69 156.20 4.68 1.26 201.49

TSL 2 (EL 2) 10.6 23.44 109.62 23.36 7.00 163.42 7.22 1.26 213.13 TSL 4, TSL 5 (EL 3) 11.1 24.42 116.37 24.44 7.39 172.62 8.39 1.26 225.89

TSL 6 (EL 5) 11.7 24.42 169.47 22.16 9.67 225.72 8.39 1.26 292.79



### Table 12.4. 17 MPC Breakdown for Product Class 3 in 2009 - Room Air Conditioners without Reverse Cycle and with Louvered Sides - 8,000 to 13,999 Btu/h

TSL (Efficiency Level) CEER Labor $ Mat l.

$ Overhead

$ Depr

.

$ MPC

$ Shipping

$ M fr. Markup MSP

$

Baseline 9.7 30.54 137.22 20.54 8.43 196.73 8.33 1.26 256.21 TSL 1, TSL 2 (EL 2 ) 10.7 30.97 146.46 20.31 8.85 206.59 9.72 1.26 270.02

TSL 3, TSL 4 (EL 3) 10.9 31.04 149.13 20.23 8.97 209.37 9.95 1.26 273.76

TSL 5 (EL 4) 11.5 31.23 166.27 19.70 9.72 226.91 10.62 1.26 296.52 TSL 6 (EL 5) 12.0 32.60 208.84 19.46 11.68 272.57 15.36 1.26 358.80



### Table 12.4. 18 MPC Breakdown for Product Class 5A in 2009 - Room Air Conditioners without Reverse Cycle and with Louvered Sides - 20,000 to 24,999 Btu/h

TSL (Efficiency Level) CEER Labor $ Mat l.

$ Overhead

$ Depr

.

$ MPC

$ Shipping

$ M fr. Markup MSP

$

Baseline , TSL 3, TSL 5 (Baseline) 8.5 41.11 261.57 26.24 14.72 343.63 24.79 1.26 457.77

TSL 1, T SL 2, TSL 4 (EL 2) 9.4 43.01 277.27 26.85 15.54 362.67 27.22 1.26 484.19

TSL 6 (EL 4 ) 10.2 43.01 462.85 18.90 23.49 548.25 27.22 1.26 718.02



### Table 12.4. 19 MPC Breakdown for Product Class 5B in 2009 - Room Air Conditioners without Reverse Cycle and with Louvered Sides - 25,000 Btu/h and more

TSL (Efficiency Level) CEER Labor $ Mat l.

$ Overhead

$ Depr

.

$ MPC

$ Shipping

$ M fr. Markup MSP

$

Baseline , TSL 3, TSL 5 (Baseline) 8.5 42.24 305.08 26.61 16.74 390.66 29.75 1.26 521.98

TSL 4 (EL 1) 9.0 44.20 321.94 30.30 17.74 414.18 36.15 1.26 558.02 TSL 1, T SL 2 (EL 2) 9.4 45.33 347.33 29.39 18.89 440.94 36.46 1.26 592.04

TSL 6 (EL 3 ) 9.8 46.34 525.05 21.73 26.55 619.67 36.46 1.26 817.2412-29



### Table 12.4. 20 MPC Breakdown for Product Class 8A in 2009 - Room Air Conditioners without Reverse Cycle and without Louvered Sides - 8,000 to 10,999 Btu/h

TSL (Efficiency Level) CEER Labor $ Mat l.

$ Overhead

$ Depr

.

$ MPC

$ Shipping

$ M fr. Markup MSP

$

Baseline 8.4 28.64 144.28 29.11 9.04 211.07 12.26 1.26 278.21 TSL 1, TSL 2 (EL 1) 9.3 29.02 148.50 28.92 9.24 215.68 12.26 1.26 284.02

TSL 3, TSL 4 (EL 2) 9.6 29.04 150.55 28.83 9.33 217.75 12.26 1.26 286.63

TSL 5 (EL 3) 10.0 29.04 160.51 28.41 9.75 227.71 12.26 1.26 299.17 TSL 6 (EL 4 ) 10.4 29.04 232.32 25.33 12.83 299.52 12.26 1.26 389.66



### Table 12.4. 21 MPC Breakdown for Product Class 8B in 2009 - Room Air Conditioners without Reverse Cycle and without Louvered Sides - 11,000 to 13,999 Btu/h

DOE also incorporated learning over time into the analysis, which affects the MPC and MSPs over time. These prices trends impact the MIA results by changing industry revenue and cash flow. For the MIA, DOE used the same learning rates as used in the NIA from the base year of the analysis, 2011, through the end of the analysis period. DOE also assumed that MPCs and MSPs were similarly impacted by the learning rates in both the base case and standards cases. See the LCC and NIA chapters 8 and 10 for a description of how DOE incorporated learning rates into the analysis.

12.4.8 Conversion Costs

Amended energy conservation standards typically cause manufacturers to incur one-time conversion costs to bring their production facilities and product designs into compliance with new regulations. For the MIA, DOE classified these one-time conversion costs into two majorgroups: capital conversion costs and product conversion costs. Capital conversion costs are onetime investments in PPE to adapt or change existing production facilities so that new product designs can be fabricated and assembled under the new regulation. Product conversion costs are one-time investments in research, development, testing, marketing and other costs to make product designs comply with amended energy conservation standards. The following sections describe the inputs DOE used in the GRIM in greater detail.

12.4.8.1 Clothes Dryer Product and Capital Conversion Costs

For clothes dryers, DOE based its conversion cost estimates that would be required to meet each TSL on information obtained from manufacturer interviews, the design pathways TSL (Efficiency Level) CEER Labor $ Mat l.

$ Overhead

$ Depr

.

$ MPC

$ Shipping

$ M fr. Markup MSP

$

Baseline 8.4 31.41 166.31 29.41 10.17 237.29 12.26 1.26 311.25 TSL 1, TSL 2 (EL 1) 9.3 32.04 177.28 29.02 10.67 249.01 12.26 1.26 326.02

TSL 3, TSL 4,

TSL 5 (EL 2) 9.5 32.51 180.40 28.95 10.82 252.68 12.26 1.26 330.64

TSL 6 (EL 4 ) 10.0 32.55 258.32 25.62 14.17 330.65 12.26 1.26 428.8812-30



### analyzed in the engineering analysis, and market information about the number of products that would require modification at each efficiency level. Because no energy label is currently prescribed for clothes dryers, and because clothes dryers are not part of the ENERGY STAR program, the best source of clothes dryer efficiency information is the CEC product database. DOE segmented each product on the CEC website into its appropriate product class using energy source, drum capacity, voltage, and combination unit information. DOE then searched manufacturer websites and numerous retail websites to determine which clothes dryers were current products. DOE assigned each product currently produced into efficiency levels using the reported energy factor. Finally, DOE assigned each of these products into product lines, classifying each group of products made by same manufacturer with identical drum capacities and energy factors into the same product line.

DOE calculated the product and capital conversion costs at each efficiency level for every product class by multiplying the total number of product lines that fell below the required efficiency by an estimate of the conversion costs to reach that efficiency level. DOE calculated the total product development required at each efficiency level by estimating the necessary engineering resources required to implement the design options in the engineering analysis at the efficiency level across a product line. DOE calculated the total capital conversion costs required at each efficiency level by estimating the additional equipment and changes to existing equipment that would be required to implement the design option in the engineering analysis at that efficiency level across a product line.

Table 12.4. 22 through Table 12.4. 27 show DOE’s estimates of the product and capital conversion costs necessary for each clothes dryer product class at each TSL.

DOE also accounted for the conversion costs necessary for the industry to comply with

the UL fire containment standard. See section 12.7.3.3 for a description of how DOE calculated the conversion costs for the UL fire containment regulation.

Table 12.4. 22 Product and Capital Conversion Costs for Product Class 1 - Electric Standard Vented Dryers by TSL

TSL (Efficiency Level) CEF Design Option s Considered Product

Conversion

Costs 2009$ millions Capital

Conversion

Costs 2009$ millions TSL 1 (EL 1) 3.56 Standby

- Switchmode PS 2.8

-

TSL 2 (EL 2) 3.61 EL 1 Design Options + Standby

- Transformerless PS 3.1

-

TSL 3, TSL 4 (EL 3) 3.73 EL 2 Design Options +

Back

- back airflow, Dedicated heater

duct 15.7 46.2

TSL 5 (EL 5) 4.08 EL 3 Design Options +

IEL 1 + 2

- Stage Modulating Heat IEL 2 + Inlet Air Preheating, ECM Fan

Motor 84.5 165.6

TSL 6 (EL 6) 5.42 EL 5 Design Options + Heat Pump 275.5 347.512-31



### Table 12.4. 23 Product and Capital Conversion Costs for Product Class 2 - Electric Compact Vented Dryers (120V) by TSL

TSL (Efficiency Level) CEF Design Option s Considered Product

Conversion

Costs 2009$ millions Capital

Conversion

Costs 2009$ millions TSL 2, TSL 3, TSL 4 (EL 2) 3.61 Standby

- Switchmode PS Standby

- Transformerless PS 0.1

-

TSL 5 (EL 5) 4.08 EL 2 Design Options +

Back

- back airflow, Dedicated heater duct

IEL 1 + 2

- Stage Modulating Heat IEL 2 + Inlet Air Preheating, ECM Fan

Motor 1.8 3.5

TSL 6 (EL 6) 5.41 EL 5 Design Options + Heat Pump 5.5 7.0



### Table 12.4. 24 Product and Capital Conversion Costs for Product Class 3 - Electric Compact Vented Dryers (240V) by TSL

TSL (Efficiency Level) CEF Design Option s Considered Product

Conversion

Costs 2009$ millions Capital

Conversion

Costs 2009$ millions TSL 2, TSL 3, TSL 4 (EL 2) 3.27 Standby

- Switchmode PS Standby

- Transformerless PS 0.2

-

TSL 5 (EL 5) 3.60 EL 2 Design Options +

Back

- back airflow, Dedicated heater

duct

IEL 1 + 2

- Stage Modulating Heat
IEL 2 + Inlet Air Preheating, ECM Fan

Motor 5.3 10.4

TSL 6 (EL 6) 4.89 EL 5 Design Options + Heat Pump 16.5 20.9



### Table 12.4. 25 Product and Capital Conversion Costs for Product Class 4 - Gas Vented Dryers by TSL

TSL (Efficiency Level) CEF Design Option s Considered Product

Conversion

Costs 2009$ millions Capital

Conversion

Costs 2009$ millions
TSL 1 (EL 1) 3.16 Standby

- Switchmode PS 1.5

-

TSL 2 , TSL 3 (EL 2) 3.20 EL 1 Design Options + Standby

- Transformerless PS 1.7

-

TSL 4 (EL 3) 3.30 EL 2 Design Options +

Back

- back airflow, Dedicated heater

duct 8.4 24.8

TSL 5 , TSL 6 (EL 5) 3.61 EL 3 Design Options +

IEL 1 + 2

- Stage Modulating Heat IEL 2 + Inlet Air Preheating, ECM Fan

Motor 73.9 144.912-32



### Table 12.4. 26 Product and Capital Conversion Costs for Product Class 5 - Electric Compact (240V) Ventless Dryers by TSL

TSL (Efficiency Level) CEF Design Option s Considered Product

Conversion

Costs 2009$ millions Capital

Conversion

Costs 2009$ millions

TSL 2, TSL 3 (EL 2) 2.69 Standby

- Switchmode PS
Standby

- Transformerless PS 0.1

-

TSL 5 (EL 4 ) 2.80 EL 2 Design Options +

Back

- back airflow

IEL 3 + 2

- Stage Modulating Heat 0.3 1.8

TSL 6 (EL 5 ) 4.03 EL 4 Design Options + Heat Pump 4.0 5.3



### Table 12.4. 27 Product and Capital Conversion Costs for Product Class 6 - Electric Combination Ventless Dryers by TSL

TSL (Efficiency Level) CEF Design Option s Considered Product

Conversion

Costs 2009$ millions Capital

Conversion

Costs 2009$ millions

TSL 2, TSL 3, TSL 5 (EL 4) 2.56 Baseline ATT Standby

- Switchmode PS Standby

- Transformerless PS

IEL 3 + 2

- Stage Modulating Heat 0.3 1.8

TSL 6 (EL 5 ) 3.69 EL 4 Design Options + Heat Pump 8.0 10.5



### 12.4.8.2 Room Air Conditioner Product and Capital Conversion Costs

While DOE ’s calculation of conversion costs for room air conditioners was similar to the calculation of conversion costs for clothes dryers, DOE used a slightly different approach to determine the number of product lines at each efficiency level. DOE used the CEC appliance database to determine what models currently exist on the market for room air conditioners and verified these current products through manufacturer and retail websites. DOE eliminated products in the database that were discontinued due to the recent refrigerant switch to R-410A. DOE segmented each product from the CEC database into its appropriate product class using cooling capacity, the existence of louvers, and type of room air conditioner. DOE assigned each product currently produced into efficiency levels using the reported EER. Finally, DOE determined a representative distribution of the industry by extrapolating the information for manufacturers for which it had complete efficiency information to account for the product lines

of all manufacturers.

Like its method for clothes dryers, DOE calculated the industry wide conversion costs by multiplying the number of product lines in each product class that fell below the required efficiency by its estimate of the product and capital conversion costs. DOE’s estimate was based on the design options at each efficiency level in the engineering analysis. DOE’s per line product conversion costs were calculated by estimating the product development time required to make the design change across a product family. For component switch outs, DOE assumed that design changes for components that interacted with other parts of the room air conditioner would be12-33



### more costly than one-for-one switch outs because these components would require greater engineering effort to be adapted into new product designs. For capital conversion costs, DOE assumed based on manufacturer feedback that the only design changes that would require changes to existing equipment were larger chassis volumes, evaporator changes, and condenser changes.

Table 12.4. 28 through Table 12.4. 33 sho w DOE’s estimates of the product and capital conversion costs necessary for each room air conditioner product class at each TSL.

Table 12.4. 28 Product and Capital Conversion Costs for Product Class 1 - Room Ai r Conditioners without Reverse Cycle and with Louvered Sides - Less than 6,000 Btu/h by

TSL

TSL (Efficiency Level) CEER Design Option s Considered Product

Conversion

Costs 2009$ millions Capital

Conversion

Costs 2009$ millions

TSL 1, TSL 3 (EL 1) 10.1 Standby Reduction

Increase e vap orator width

Increase chassis volume 12.7 18.7

TSL 2 (EL 2) 10.6 EL 1 Design Options +

Increase chassis volume further 20.1 41.4

TSL 4, TSL 5 (EL 3) 11.1 EL 2 Design Options +

Increase Cond enser to 3 Tubes 31.7 56.7

TSL 6 (EL 5) 11.7 EL 3 Design Options +
Increase PSC Efficiency
Increase Evap orator Fin Thickness

DC Brushless Motor 41.6 63.012-34



### Table 12.4. 29 Product and Capital Conversion Costs for Product Class 3 - Room Air Conditioners without Reverse Cycle and with Louvered Sides - 8,000 to 13,999 Btu/h by

TSL

TSL (Efficiency Level) CEER Design Options Considered (8,000 Btu/h

unit) Design Option s

Considered (12,000 Btu/h

unit) Product

Conversion

Costs 2009$

millions Capital

Conversion

Costs 2009$

millions

TSL 1, TSL 2 (EL 2 ) 10.7 Increase Compre ssor Eff i ciency
Standby Reduction

Increase chassis volume Add Subcooler
Increase Compressor Efficiency 7.3 13.3

TSL 3, TSL

4 (EL 3) 10.9 EL 2 Design Options +

Increase chassis volume

further EL 2 Design Options +

10 EER Compressor 20.4 38.6

TSL 5 (EL 4) 11.5 EL 3 Design Options +
Increase PSC Efficiency

Increase chassis volume

further EL 3 Design Options +

Standby Reduction
Increase PSC Efficiency 31.3 41.2

TSL 6 (EL 5) 12.0 EL 4 Design Options +

Increase chassis volume

further

DC Brushless Motor EL 4 Design Options +
Increase Evap orator Rows to

4 Rows

Increase chassis volume 54.2 91.9



### Table 12.4. 30 Product and Capital Conversion Costs for Product Class 5A - Room Air Conditioners without Reverse Cycle and with Louvered Sides - 20,000 to 24,999 Btu/h by

TSL

TSL (Efficiency Level) CEER Design Option s Considered Product

Conversion

Costs 2009$ millions Capital

Conver sion

Costs 2009$ millions

TSL 1, T SL 2, TSL 4 (EL 2) 9.4 Increase chassis volume

Add a fourth condenser row
Standby Reduction 0.7 4.5

TSL 6 (EL 4 ) 10.2 EL 2 Design Options +
Increase Compressor E fficiency

Increase PSC E fficiency

DC Brushless Motor 3.3 16.612-35



### Table 12.4. 31 Product and Capital Conversion Costs for Product Class 5B - Room Air Conditioners without Reverse Cycle and with Louvered Sides - 25,000 Btu/h and more by

TSL

TSL (Efficiency Level) CEE

R Design Option s Considered Product

Conversion

Costs 2009$ millions Capital

Conversion

Costs 2009$ millions
TSL 4 (EL 1) 9.0 Increase chassis volume 0.2 6.4

TSL 1, T SL 2 (EL 2) 9.4 EL 1 Design Options +
Standby Reduction
Increase Compressor Efficiency

Add a fourth condenser row 0.7 9.0

TSL 6 (EL 3 ) 9.8 EL 2 Design Options +
Increase PSC Efficiency

DC Brushless Motor 1.9 18.1



### Table 12.4. 32 Product and Capital Conversion Costs for Product Class 8A - Room Air Conditioners without Reverse Cycle and without Louvered Sides - 8,000 to 10,999 Btu/h by

TSL

TSL (Efficiency Level) CEER Design Option s Considered Product

Conversion

Costs 2009$ millions Capital

Conversion

Costs 2009$ millions

TSL 1, TSL 2 (EL 1) 9.3 Increase evaporator width 0.3 0.1

TSL 3, TSL 4 (EL 2) 9.6 EL 1 Design Options +

Add Subcooler
Increase Compressor Efficiency 6.7 1.6

TSL 5 (EL 3) 10.0 EL 2 Design Options +
Standby Reduction
Increase PSC Efficiency 9.8 1.8

TSL 6 (EL 4 ) 10.4 EL 3 Design Options +

DC Brushless Motor 11.9 1.912-36



### Table 12.4. 33 Product and Capital Conversion Costs for Product Class 8B - Room Air Conditioners without Reverse Cycle and without Louvered Sides - 11,000 to 13,999 Btu/h by TSL

TSL (Efficiency Level) CEER Design Option s Considered Product

Conversion

Costs 2009$ millions Capital

Conversion

Costs 2009$ millions

TSL 1, TSL 2 (EL 1) 9.3 Increase Compressor Efficiency 0.3 0.3

TSL 3, TSL 4, TSL 5 (EL 2) 9.5 EL 1 Design Options +
Increase evaporator width 1.5 1.6

TSL 6 (EL 4 ) 10.0 EL 2 Design Options +
Standby Reduction
Increase PSC Efficiency

DC Brushless Motor 4.1 2.0



### 12.4.9 Markup Scenarios

DOE used several standards case markup scenarios to represent the uncertainty about the impacts of amended energy conservation standards on prices and profitability. In the base case, DOE used the same baseline markups calculated in the engineering analysis for all product classes. In the standards case, DOE modeled two markup scenarios to represent the uncertainty about the potential impacts on prices and profitability following the implementation of amended energy conservation standards : (1) a flat markup scenario, and (2) a preservation of operation profit scenario. These scenarios lead to different markups values, which, when applied to the inputted MPCs, result in varying revenue and cash flow impacts.

12.4.9.1 Flat Markup Scenario
The flat markup scenario assumes that the cost of goods sold for each product is marked up by a flat percentage to cover standard SG&A expenses, R&D expenses, and profit. The flat markup scenario uses the baseline manufacturer markup (discussed in chapter 6 of the direct final rule TSD) for all products in both the base case and the standards case. To derive this percentage, DOE evaluated publicly available financial information for manufacturers of major household appliances whose product offerings include clothes dryers and room air conditioners. DOE also requested feedback on this value during manufacturer interviews. This scenario represents the upper bound of industry profitability in the standards case because under this scenario, manufacturers are able to fully pass through additional costs due to standards to their

customers.

12.4.9.2 Preservation of Operating Profit Scenario
DOE also modeled a lower bound profitability scenario. In this scenario, the manufacturer markups are lowered such that, in the standards case, manufacturers are able to maintain only the base-case total operating profit in absolute dollars, despite higher product costs and investment. DOE implemented this scenario in GRIM by lowering the manufacturer markups at

each TSL to yield approximately the same earnings before interest and taxes in the standards case in the year after the compliance date of the amended standards as in the base case

. For clothes dryers in the preservation of operating profit scenario, DOE assumed that the industry wide impacts would occur under the new minimum efficiency levels. DOE altered the12-37



### markups only for the minimally compliant products in this scenario, with margin impacts not occurring for products that already exceed the amended energy conservation standard. For room air conditioners, DOE assumed that the margin impacts would affect the minimally compliant products at the amended energy conservation standards and the next highest efficiency level. The NIA analyzed an efficiency migration in both the base case and the standards case due to the assumption that manufacturers will produce increasingly more efficient room air conditioners as ENERGY STAR levels for these products change over time, Therefore, under amended energy conservation standards the shipment weighted average efficiency increases from the new minimum standard to higher efficiency levels. DOE assumed this market shift caused by standards would impact margins on products that also become the de facto minimally efficient product over time. For both clothes dryers and room air conditioners, the preservation of operating profit represents the lower bound of industry profitability following amended energy conservation standards because under this scenario, higher production costs and the investments required to comply with the amended energy conservation standard do not yield additional operating profit.

While DOE used the same markup scenarios for clothes dryers and room air conditioners, DOE captured different concerns for each industry by modeling the preservation of operating profit scenario. For clothes dryers, manufacturers were particularly concerned about the inability to markup the full cost of production. Because there is currently no energy label requirement or ENERGY STAR program for clothes dryers, the lack of consumer information makes it more difficult for customers to calculate individual payback and energy savings. Consequently, the manufacturing cost for more efficient clothes dryers could not be fully marked up because energy efficiency, unlike price and other features, is not a factor in the purchasing decision of most consumers. Manufacturers also cited the highly competitive market, the concentrated retail market that represents the majority of sales, and price points that are fixed partly by paired washing machines as other reasons that additional production costs would not yield higher profits in the standards case.

For room air conditioners, manufacturers stated that higher production costs couldseverely harm profitability. Manufacturers already earn very little profit on the small, highvolume window units due to the enormous price pressure retailers exert because of their purchasing power, and due to fierce competition within the room air conditioner industry. Manufacturers accept lower absolute profit on these units with the expectation of making a larger per unit profit on other more costly products. They also do so because maintaining high production volumes of these units allows manufacturers to keep factories utilized and to achieve purchasing economies. In addition, because many purchases are impulse buys during periods of atypically warm weather for products that are used sparingly, any increase in first cost could impact these types of sales. Therefore, manufacturers were skeptical that customers would accept the full additional cost of production.

Table 12.4. 34 through Table 12.4. 39 lists the products DOE analyzed with the corresponding markups at each TSL for clothes dryers. Table 12.4. 40 through Table 12.4. 45 lists the products DOE analyzed with the corresponding markups at each TSL for room air

conditioners.

Clothes Dryers Preservation of Operating Profit Manufacturer Markups12-38



### Table 12.4. 34 Preservation of Operating Profit Markups for Product Class 1 - Electric Standard Vented Dryers

EL ( CEF ) Markups by TSL

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6
Baseline ( 3.55 ) 1.2600

- - - - - -

EL 1 ( 3.56 ) 1.2600 1.2 600

- - - - -

EL 2 ( 3.61 ) 1.2600 1.2600 1.2 600

- - - -

EL 3 ( 3.73 ) 1.2600 1.2600 1.2600 1.25 79 1.25 79

- -

EL 4 ( 3.81 ) 1.2600 1.2600 1.2600 1.2600 1.2600

- -

EL 5 ( 4.08 ) 1.2600 1.2600 1.2600 1.2600 1.2600 1.2 412

-

EL 6 ( 5.42 ) 1.2600 1.2600 1.2600 1.2600 1.2600 1.2600 1.22 69



### Table 12.4. 35 Preservation of Operating Profit Markups for Product Class 2 - Electric Compact Vented Dryers (120V)

EL ( CEF ) Markups by TSL

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6

Baseline ( 3.43 ) 1.2600 1.2600

- - - - -

EL 1 ( 3.48 ) 1.2600 1.2600

- - - - -

EL 2 ( 3.61 ) 1.2600 1.2600 1.2597 1.2597 1.2597

- -

EL 3 ( 3.72 ) 1.2600 1.2600 1.2600 1.2600 1.2600

- -

EL 4 ( 3.80 ) 1.2600 1.2600 1.2600 1.2600 1.2600

- -

EL 5 ( 4.08 ) 1.2600 1.2600 1.2600 1.2600 1.2600 1.23 76

-

EL 6 ( 5.41 ) 1.2600 1.2600 1.2600 1.2600 1.2600 1.2600 1.227 212-39



### Table 12.4. 36 Preservation of Operating Profit Markups for Product Class 3 - Electric Compact Vented Dryers (240V)

EL ( CEF ) Markups by TSL

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6

Baseline ( 3.12 ) 1.2600 1.2600

- - - - -

EL 1 ( 3.1 6 ) 1.2600 1.2600

- - - - -

EL 2 ( 3. 27 ) 1.2600 1.2600 1.2598 1.2598 1.2598

- -

EL 3 ( 3. 36 ) 1.2600 1.2600 1.2600 1.2600 1.2600

- -

EL 4 ( 3. 48 ) 1.2600 1.2600 1.2600 1.2600 1.2600

- -

EL 5 ( 3.60 ) 1.2600 1.2600 1.2600 1.2600 1.2600 1.23 99

-

EL 6 ( 4.89 ) 1.2600 1.2600 1.2600 1.2600 1.2600 1.2600 1.228 4



### Table 12.4. 37 Preservation of Operating Profit Markups for Product Class 4 - Gas Vented Dryers

EL ( CEF ) Markups by TSL

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6
Baseline ( 3.14 ) 1.2600

- - - - - -

EL 1 ( 3.1 6 ) 1.2600 1.2599

- - - - -

EL 2 ( 3. 20 ) 1.2600 1.2600 1.2 600 1.2 600

- - -

EL 3 ( 3.30 ) 1.2600 1.2600 1.2600 1.2600 1.25 84

- -

EL 4 ( 3. 42 ) 1.2600 1.2600 1.2600 1.2600 1.2600

- -

EL 5 ( 3.61 ) 1.2600 1.2600 1.2600 1.2600 1.2600 1.2 40 2 1.2 40 2



### Table 12.4. 38 Preservation of Operating Profit Markups for Product Class 5 - Electric Compact (240V) Ventless Dryers

EL ( CEF ) Markups by TSL

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6
Baseline ( 2 .55 ) 1.2600 1.2600

- - 1.2600

- -

EL 1 ( 2.59 ) 1.2600 1.2600

- - 1.2600

- -

EL 2 ( 2.69 ) 1.2600 1.2600 1.25 71 1.25 71 1.2600

- -

EL 3 ( 2.71 ) 1.2600 1.2600 1.2600 1.2600 1.2600

- -

EL 4 (2.80 ) 1.2600 1.2600 1.2600 1.2600 1.2600 1.25 13

-

EL 5 ( 4.0 3 ) 1.2600 1.2600 1.2600 1.2600 1.2600 1.2600 1.2 39112-40



### Table 12.4. 39 Preservation of Operating Profit Markups for Product Class 6 - Electric Combination Ventless Dryers

EL ( CEF ) Markups by TSL

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6

Baseline ( 2.08 ) 1.2600 1.2600

- - 1.2600

- -

EL 1 ( 2.35 ) 1.2600 1.2600

- - 1.2600

- -

EL 2 ( 2.38 ) 1.2600 1.2600

- - 1.2600

- -

EL 3 ( 2.46 ) 1.2600 1.2600

- - 1.2600

- -

EL 4 ( 2.56 ) 1.2600 1.2600 1.25 48 1.25 48 1.2600 1.25 48

-

EL 5 ( 3.69 ) 1.2600 1.2600 1.2600 1.2600 1.2600 1.2600 1.24 10



### Room Air Conditioner Preservation of Operating Profit Manufacturer Markups

Table 12.4. 40 Preservation of Operating Profit Markups for Product Class 1 - Room Air Conditioners without Reverse Cycle and with Louvered Sides - Less than 6,000 Btu/h

EL ( CEER ) Markups by TSL

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6
Baseline ( 9.5 ) 1.2600

- - - - - -

EL 1 ( 10.1 ) 1.2600 1.2565

- 1.2565

- - -

EL 2 (10.6 ) 1.2600 1.2528 1.2528 1.2528

- - -

EL 3 ( 11.1 ) 1.2600 1.2600 1.2485 1.2600 1.2485 1.2485

-

EL 4 ( 11.4) 1.2600 1.2600 1.2600 1.2600 1.2446 1.2446

-

EL 5 ( 11.7 ) 1.2600 1.2600 1.2600 1.2600 1.2600 1.2600 1.230812-41



### Table 12.4. 41 Preservation of Operating Profit Markups for Product Class 3 - Room Air Conditioners without Reverse Cycle and with Louvered Sides - 8,000 to 13,999 Btu/h

EL ( CEER ) Markups by TSL

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6

Baseline ( 9.7 ) 1.2600

- - - - - -

EL 1 ( 10.2 ) 1.2600

- - - - - -

EL 2 (10.7 ) 1.2600 1.2558 1.2558

- - - -

EL 3 ( 10.9 ) 1.2600 1.2 547 1.2 547 1.2 547 1.2 547

- -

EL 4 ( 11.5) 1.2600 1.2600 1.2600 1.2 484 1.2 484 1.2 484

-

EL 5 ( 12.0 ) 1.2600 1.2600 1.2600 1.2600 1.2600 1.2 358 1.2 358



### Table 12.4. 42 Preservation of Operating Profit Markups for Product Class 5A - Room Air Conditioners without Reverse Cycle and with Louvered Sides - 20,000 to 24,999 Btu/h

EL ( CEER ) Markups by TSL

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6

Baseline ( 8.5 ) 1.2600

- - 1.2600

- 1.2600

-

EL 1 ( 9.0 ) 1.2600

- - 1.2600

- 1.2600

-

EL 2 (9.4 ) 1.2600 1.2554 1.2554 1.2600 1.2554 1.2600

-

EL 3 ( 9.8 ) 1.2600 1.2 488 1.2 488 1.2600 1.2 488 1.2600

-

EL 4 ( 10.2) 1.2600 1.2600 1.2600 1.2600 1.2600 1.2600 1.2275



### Table 12.4. 43 Preservation of Operating Profit Markups for Product Class 5B - Room Air Conditioners without Reverse Cycle and with Louvered Sides - 25,000 Btu/h and more

EL ( CEER ) Markups by TSL

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6
Baseline ( 8.5 ) 1.2600

- - 1.2600

- 1.2600

-

EL 1 ( 9.0 ) 1.2600

- - 1.2600 1.2551 1.2600

-

EL 2 (9.4 ) 1.2600 1.2501 1.2501 1.2600 1.2501 1.2600

-

EL 3 ( 9.8 ) 1.2600 1.2278 1.2278 1.2600 1.2600 1.2600 1.227812-42



### Table 12.4. 44 Preservation of Operating Profit Markups for Product Class 8A - Room Air Conditioners without Reverse Cycle and without Louvered Sides - 8,000 to 10,999 Btu/h

EL ( CEER ) Markups by TSL

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6

Baseline ( 8.4 ) 1.2600

- - - - - -

EL 1 ( 9.3 ) 1.2600 1.2581 1.2581

- - - -

EL 2 (9.6 ) 1.2600 1.2 573 1.2 573 1.2 573 1.2 573

- -

EL 3 ( 10.0 ) 1.2600 1.2600 1.2600 1.2536 1.2536 1.2536

-

EL 4 ( 10.4) 1.2600 1.2600 1.2600 1.2600 1.2600 1.2 343 1.2 343



### Table 12.4. 45 Preservation of Operating Profit Markups for Product Class 8B - Room Air Conditioners without Reverse Cycle and without Louvered Sides - 11,000 to 13,999 Btu/h

EL ( CEER ) Markups by TSL

Baseline TSL 1 TSL 2 TSL 3 TSL 4 TSL 5 TSL 6
Baseline ( 8.4 ) 1.2600

- - - - - -

EL 1 ( 9.3 ) 1.2600 1.2559 1.2559

- - - -

EL 2 (9.5 ) 1.2600 1.2 547 1.2 547 1.2 547 1.2 547 1.2 547

-

EL 3 ( 9.8 ) 1.2600 1.2600 1.2600 1. 2514 1. 2514 1. 2514

-

EL 4 ( 10.0) 1.2600 1.2600 1.2600 1.2600 1.2600 1.2600 1.2354



### 12.5 INDUSTRY FINANCIAL IMPACTS

Using the inputs and scenarios described in the previous sections, the GRIM estimated indicators of financial impacts on the residential clothes dryer and room air conditioner industries. The main results of the MIA are also reported in this section. The MIA consists of two key financial metrics: INPV and annual cash flows.

12.5.1 Introduction

The INPV measures the industry value and is used in the MIA to compare the economic impacts of different TSLs in the standards case. The INPV is different from DOE’s NPV, which is applied to the U.S. economy. The INPV is the sum of all net cash flows discounted at the industry’s cost of capital, or discount rate. The clothes dryer and room air conditioner GRIM s estimate cash flows from 2011 to 2043. This timeframe models both the short-term impacts on the industry from the announcement of the standard until the compliance date (2011 until an estimated compliance date of January 2014) and a long-term assessment over the 30 year analysis period used in the NIA (2014 – 2043).12-43



### In the MIA, DOE compares the INPV of the base case (no amended energy conservation standards) to that of each TSL in the standards case. The difference between the base case and a standards case INPV is an estimate of the economic impacts that implementing that particular TSL would have on the industry. For the clothes dryer and room air conditioner industries, DOE examined the two markup scenarios described above: the flat markup and the preservation of operating profit. DOE also notes that incorporating learning rates into the analysis impacts INPV in both the base and standards case. Since the trends for MPC and MSP using learning rates decline over the analysis period, the base case industry value is lower for all product groupings. Thus, incorporating learning rates in the MIA increases the relative impacts on INPV due to

standards.

While INPV is useful for evaluating the long-term effects of amended energy conservation standards, short-term changes in cash flow are also important indicators of the industry’s financial situation. For example, a large investment over one or two years could strain the industry’s access to capital. Consequently, the sharp drop in financial performance could cause investors to flee, even though recovery may be possible. Thus, a short-term disturbance can have long-term effects that the INPV cannot capture. To get an idea of the behavior of annual net cash flows, Figure 12.5.1 through Figure 12.5.4 below present the annual net or free cash flows from 2010 through 2025 for the base case and different TSLs in the standards case.

Because the same markup scenarios are used for clothes dryers and room air conditioners

, each of the figures below has a similar shape. Annual cash flows are discounted to the base year, 2011. Between 2011 and the 2014 compliance date of the amended energy conservation standard, cash flows are driven by the level of conversion costs and the proportion of these investments spent every year. After the standard announcement date ( i.e. , the publication date of the final rule), industry cash flows begin to decline as companies use their financial resources to prepare for the amended energy conservation standard. The more stringent the amended energy conservation standard, the greater the impact on industry cash flows in the years leading up to the compliance date, as product conversion costs lower cash inflows from operations and capital conversion costs increase cash outflows for capital expenditures.

Free cash flow in the year the amended energy conservation standards take effect is driven by two competing factors. In addition to capital and product conversion costs, amended energy conservation standards could create stranded assets, i.e. , tooling and equipment that would have enjoyed longer use if the energy conservation standard had not made them obsolete. In this year, manufacturers write down the remaining book value of existing tooling and equipment whose value is affected by the amended energy conservation standard. This one time write down acts as a tax shield that alleviates decreases in cash flow from operations in the year of the write-down. In this year, there is also an increase in working capital that reduces cash flow from operations. A large increase in working capital is needed due to more costly production components and materials, higher inventory carrying to sell more expensive products, and higher accounts receivable for more expensive products. Depending on these two competing factors, cash flow can either be positively or negatively affected in the year the standard takes effect.

In the years following the compliance date of the standard, the impact on cash flow depends on the operating revenue. More stringent TSLs typically have a positive impact on cash flows relative to the base case under the flat markup scenario because manufacturers are able to12-44



### earner higher operating profit at each TSL in the standards case, which increases cash flow from

op erations. There is very little impact on cash flow from operations under the preservation of operating profit scenario because this scenario is calibrated to have the same operating income in the standards case at each TSL as the base case as in the year after the standard takes effect. In this scenario, the industry value is impacted because production costs increase, but operating profit remains approximately equal to the base case which decreases profit margins as a percentage of revenue.

12.5.2 Residential Clothes Dryer Industry Financial Impacts

Table 12.5.1 through Table 12.5.2 provide the INPV estimates for the residential clothes dryer industry. Figure 12.5.1 through Figure 12.5.2 present the annual net cash flows for residential clothes dryers for each of the different markup scenarios.

Table 12.5.1 Changes in Industry Net Present Value for Residential Clothes Dryers (Flat Markup Scenario)

Units Base

Case Trial Standard Level

1 2 3 4 5 6

INPV (2009$

millions) 

### 1,003.6 1,001.1 1,000.0 962.5 939.2 827.1 699.7

Change in

INPV (2009$

millions) 

### - (2.6) (3.6) (41.13) (64.46) (176.5) (303.9)

(%)



### - - 0.3%

- 0.4%

- 4.1%

- 6.4%

- 17.6%

- 30.3%

*For tables in section 12.5 , values in parenthesis indicate negative numbers



### Table 12.5.2 Changes in Industry Net Present Value for Residential Clothes Dryers (Preservati on of

Operating Profit Markup Scenario)

Units Base

Case Trial Standard Level

1 2 3 4 5 6

INPV (2009$

millions) 

### 1,003.6 1,001.0 998.7 948.2 923.0 606.2 273.6

Change in

INPV (2009$

millions) 

### - (2.6) (4.9) (55.46) (80.63) (397.4) (730.0)

(%)



### - - 0.3%

- 0.5%

- 5.5%

- 8.0%

- 39.6%

- 72.7%12-45



### Figure 12.5.1 Annual Industry Net Cash Flows for Residential Clothes Dryers (Flat Markup Scenario)

Figure 12.5.2 Annual Industry Net Cash Flows for Residential Clothes Dryers12-46



### (Preservation of

Operating Profit Markup Scenario)

12.5.3 Room Air Conditioner Industry Financial Impacts

Table 12.5.3 through Table 12.5.4 provide the INPV estimates for the room air conditioner industry. Figure 12.5.3 through Figure 12.5.4 present the annual net cash flows for room air conditioners for each markup scenario.

Table 12.5.3 Changes in Industry Net Present Value for Room Air Conditioners (Flat Markup Scenario)

Units Base
Case TSL

1 2 3 4 5 6

INPV 2009 $ millions 956.0 911.8 890.6 890.3 844.7 869.5 875.9

Change in

INPV 2009 $ millions*

- (44.2) (65.4) (65.7) (111.3) (86.6) (80.2)

%

- - 4.6%

- 6.8%

- 6.9%

- 11.6%

- 9.1%

- 8.4%

*For tables in section 12.5.3 , values in parenthesis indicate negative numbers



### Table 12.5.4 Changes in Industry Net Present Value for Room Air Conditioners (Preservation of

Operating Profit Markup Scenario)

Units Base

Case TSL

1 2 3 4 5 6

INPV 2009 $ millions 956.0 871.1 843.3 843.6 778.4 771.6 611.5

Change in

INPV 2009 $ millions

- (84.9) (112.7) (112.4) (177.6) (184.4) (344.5)

%

- - 8.9%

- 11.8%

- 11.8%

- 18.6%

- 19.3%

- 36.0%



### Figure 12.5.3 Annual Industry Net Cash Flows for Room Air Conditioners (Flat Markup12-47



### Scenario)

Figure 12.5.4 Annual Industry Net Cash Flows for Room Air Conditioners (Preservation of Operating Profit Markup Scenario)

12.6 IMPACTS ON SMALL RESIDENTIAL CLOTHES DRYER AND ROOM AIR

CONDITIONER MANUFACTURERS

DOE conducted a more focused inquiry of the companies that could be small business manufacturers of products covered by this rulemaking. During its market survey, DOE used all available public information to identify potential small manufacturers. DOE’s research included the AHAM membership directory, product databases (the AHRI, AHAM, CEC, and ENERGY STAR databases), individual company websites, and the SBA dynamic small business search to find potential small business manufacturers. DOE also asked stakeholders and industry representatives if they were aware of any other small business manufacturers duringmanufacturer interviews and at previous DOE public meetings. DOE reviewed all publiclyavailable data and contacted various companies, as necessary, to determine whether they met the SBA’s definition of a small business manufacturer of covered residential clothes dryers or room air conditioners. DOE screened out companies that did not offer products covered by this rulemaking, did not meet the definition of a “small business,” or are foreign ow ned and operated.

DOE initially identified at least 14 distinct brands of residential clothes dryers sold in the United States. DOE determined that 13 of these companies exceeded the SBA’s maximum number of employees or foreign-owned and operated. Thus, DOE identified only one potential small business manufacturer of residential clothes dryers. DOE notes that while the potential small business manufacturer has developed a highly efficient technology that could be used by12-48



### other manufacturers to increase the efficiency of clothes dryers, the company does not produce clothes dryers and the technology is not yet commercially available. DOE acknowledges that the technology developed by this small business is a potential design option for clothes dryers, but DOE does not believe this rulemaking would in any way affect the ability of this company to commercialize or sell its technology.

For room air conditioners, DOE initially identified at least 11 distinct brands of room airconditioners sold in the United States. DOE determined that 10 of these were large or foreignowned and operated. DOE determined that the one room air conditioner manufacturer that was previously designated as a small business manufacturer was acquired by another company and now exceeds SBA’s employment threshold for consideration as a small business under the appropriate NAICS code. As such, DOE did not identify any small business manufacturers of

room air conditioners.

DOE did not conduct a more in-depth analysis of the potential impacts on small business

manufacturers because there is on ly one potential small business manufacturer in the residential clothes dryer market, this potential small business has developed a technology that will not be impacted by amended energy conservation standards for clothes dryers, and because this business is not a manufacturer of clothes dryers. Additionally, DOE did not identify any small manufacturers of room air conditioners. As such, DOE does not believe small manufacturers would be significantly impacted by amended energy conservation standards.

12.7 OTHER IMPACTS

12.7.1 Employment

12.7.1.1 Residential Clothes Dryer Employment Impacts

For clothes dryers, DOE used the GRIM to estimate the domestic labor expenditures and number of domestic production workers in the base case and at each TSL from 2011 to 2043. DOE used statistical data from the most recent U.S. Census Bureau’s 2008 Annual Survey of Manufacturers, the results of the engineering analysis, and interviews with manufacturers to determine the inputs necessary to calculate industry-wide labor expenditures and domestic employment levels. Labor expenditures for the manufacture of a product are a function of the labor intensity of the product, the sales volume, and an assumption that wages in real terms

remain constant.

In the GRIM, DOE used the labor content of each product and the manufacturing production costs from the engineering analysis to estimate the annual labor expenditures in the clothes dryers and room air conditioner industri es . DOE used Census data and interviews with manufacturers to estimate the portion of the total labor expenditures that is attributable to U.S. (i.e. , domestic) labor.

The production worker estimates in this section only cover workers up to the linesupervisor level who are directly involved in fabricating and assembling a product within an Original Equipment Manufacturer (OEM) facility. Workers performing services that are closely associated with production operations, such as material handing with a forklift, are also included12-49



### as production labor. DOE’s estimates only account for production workers who manufacture the specific products covered by this rulemaking.

The employment impacts shown in Table 12.7.1 re present the potential production employment that could result following amended energy conservation standards. The upper end of the results in this table estimates the maximum change in the number of production workers after amended energy conservation standards must be met. The upper end of the results assumes manufacturers would continue to produce the same scope of covered products in the same production facilities. The upper end of the range also assumes that domestic production does not shift to lower-labor-cost countries. Because there is a real risk of manufacturers evaluating sourcing decisions in response to amended energy conservation standards, the lower end of the range of employment results in Table 12.7.1 includes the estimated total number of U.S. production workers in the industry who could lose their jobs if all existing production were

mo ved outside of the United States

. While the results present a range of employment impacts following the compliance date of amended energy conservation standards, the discussion below also includes a qualitative discussion of the likelihood of negative employment impacts at the various TSLs. Finally, the employment impacts shown are independent of the employment impacts from the broader U.S. economy, which are documented in chapter 13, Employment Impact Analysis, of the direct final rule TSD.

The GRIM forecasts the residential clothes dryer domestic labor expenditure for production labor in 2014 will be approximately $1 40 million. Using the $18.77 wage rate and 1,886 production hours per year per employee found in the 2008 ASM, the GRIM estimates there will be approximately 3,962 U.S. production employees involved in manufacturing residential clothes dryers covered by this rulemaking. In addition, DOE estimates that 3 04 non

production employees in the United States will support residential clothes dryer production. f 

### The employment spreadsheet of the clothes dryer GRIM shows the annual domestic employment impacts in further detail. Approximately three-quarters of residential clothes dryers sold in the United States are manufactured domestically.

Table 12.7.1 illustrates the range of potential impacts of amended energy conservation standards on domestic production employment levels at each TSL for the residential clothes dryer market.

f As defined in the 2008 ASM, production workers number include “workers (up through the line-supervisor level) engaged in fabricating, processing, assembling, inspecting, receiving, storing, handling, packing, warehousing, shipping (but not delivering), maintenance, repair, janitorial and guard services, product development, auxiliary production for plant's own use ( e.g. , power plant), recordkeeping, and other services closely associated with these production operations at the establishment covered by the report. Employees

abo ve the working-supervisor level are excluded from this item.” Non-production workers are defined as“employees of the manufacturing establishment including those engaged in factory supervision above the linesupervisor level. It includes sales (including driver-salespersons), sales delivery (highway truck drivers and their helpers), advertising, credit, collection, installation and servicing of own products, clerical and routine office functions, executive, purchasing, financing, legal, personnel (including cafeteria, medical, etc.), professional, and technical employees. Also included are employees on the payroll of the manufacturing establishment engaged in the construction of major additions or alterations utilized as a separate work force.”12-50



### Table 12.7.1 Potential Changes in the Total Number of Domestic Residential Clothes Dryer

Production Workers in 2014

Trial Standard Level
Baseline 1 2 3 4 5 6



### Total Number of

Domestic Production

Workers in 2014 (without changes in production locations) 3,962 3,962 3,965 4, 370 4, 420 5 ,040 6, 218

Potential Changes in

Domestic Production

Workers in 2014* - 

### 0

- ( 3,962 ) 3

-

( 3,962 ) 408

-

( 3,962 ) 458

-

( 3,962 ) 1,078

-

( 3,962 ) 2,256

-

( 3,962 )

*DOE presents a range of potential employment impacts. Numbers in parentheses indicate negative numbers.



### Figure 12.7.1 below shows total annual domestic employment levels for each TSL calculated by the GRIM.

Figure 12.7.1 To tal Residential Clothes Dryer Industry Domestic Employment by Year

All examined TSLs show relatively minor impacts on domestic employment levels at the lower end of the range. In particular, the design options used in the engineering analysis for TSL 1 and TSL 2 almost exclusively involve changes to standby power. These TSLs would not measurably impact domestic employment levels.

At TSL 3 through TSL 5, DOE analyzed design options for the most common product classes that would add labor content to the final product. If manufacturers continue to produce12-51



### these more complex products in house, it is likely that employment would increase in response to the energy conservation standards. At TSL 3 through 5, greater levels of domestic production employment are also likely because, while requiring more labor, the product changes could be made within existing platforms. The ability to make product changes within existing platforms mitigates some of the pressure to find lower labor costs because this decision would add disruptions with suppliers and add capital costs. However, TSL 6 would effectively require heat pump clothes dryers for all electric units. Manufacturers indicated that such a drastic change to existing products could force them to consider moving domestic production to countries with lower labor costs. Besides the large capital conversion costs, the much higher labor content inheat pump clothes dryers would also put pressure on manufacturers to consider a lower-laborcost country.

12.7.1.2 Room Air Conditioner Employment Impacts

DOE’s research suggests that currently no room air conditioners are made domestically.

All manufacturers or their domestic distributors do maintain offices in the United States to handle design, technical support, training, certification, and other requirements. As amended energy conservation standards for room air conditioners are implemented, however, DOE does not anticipate any changes in domestic employment levels.

12.7.2 Production Capacity

12.7.2.1 Residential Clothes Dryer Capacity Impacts

At TSL 1 through TSL 5, manufacturers could maintain capacity levels and continue to meet market demand under amended energy conservation standards. While the changes required at these TSLs would require changes that could be made within most existing designs, TSL 6, which would effectively require heat pump technology, could result in short-term capacity constraints. Significant changes to production facilities would be required if amended energy conservation standards effectively mandated heat pump clothes dryers at TSL 6. Several manufacturers stated that they could move all or part of their production if they were required exclusively manufacture heat pump clothes dryers. Because of these drastic changes, a 3-year time period between the announcement of the final rule and the compliance date of the amended energy conservation standard might not be sufficient to design and manufacture products that have yet to be introduced in the United States and which would require new dryer designs from each manufacturer that continued to offer electric clothes dryers for the United States market.

12.7.2.2 Room Air Conditioner Capacity Impacts

DOE anticipates that amended energy conservation standards would not significantly affect the production capacity of room air conditioner manufacturers. Manufacturers mentioned two issues that could potentially constrain capacity. One is the availability of high efficiency compressors, which are currently difficult to obtain. Because amended energy conservation standards would cause the demand for high efficiency compressors to increase, manufacturers worried that they would not be able to obtain the quantities they need to maintain desired production levels. DOE understands that compressor availability is a concern at present. DOE does not believe this shortage will continue when amended standards take effect in 2014 because12-52



### the number of R-410A compressors available for the room air conditioner industry has already greatly expanded since the ban on R-22 took effect. Because there is a 3-year delay between the announcement of the final rule and the compliance date of the amended energy conservation standard, DOE believes suppliers will have sufficient time to anticipate demand and ramp up production of high efficiency compressors for room air conditioners.

The second potential capacity constraint involves changes to existing chassis sizes, which could be required by amended energy conservation standards. Manufacturers stated that increasing chassis volume requires significant product development and capital investments, which could severely disrupt production at their facilities. DOE understands that increasing chassis volume causes substantial conversion costs, which are quantified in the GRIM. DOE does not believe, however, that the proposed standards would significantly affect production capacity. Even though chassis size increases require large capital and product conversion costs, this design option is not required across all analyzed product classes. In addition, manufacturers were more concerned about the capital and product conversion costs to make these changes than having a three year implementation period to do so, and DOE has accounted for these costs in the

establishment of the room air conditioner standards. DOE believes that room air conditioner manufacturers will be able to increase chassis volumes by 2014 while maintaining production capacity levels and continuing to meet market demand for all room air conditioner standard

levels.

12.7.3 Cumulative Regulatory Burden

While any one regulation may not impose a significant burden on manufacturers, the combined effects of several impending regulations may have serious consequences for some manufacturers, groups of manufacturers, or an entire industry. Assessing the impact of a single regulation may overlook this cumulative regulatory burden. For the cumulative regulatory burden analysis, DOE looks at other significant product-specific regulations that could affect clothes dryer and room air conditioner manufacturers that will take effect 3 years before or after the compliance date of amended energy conservation standards for these products. g 

### In addition to the amended energy conservation regulations on clothes dryers and room air conditioners

, several other Federal regulations apply to these products and other equipment produced by the same manufacturers. While the cumulative regulatory burden focuses on the impacts on manufacturers of other Federal requirements, DOE also has described a number of other regulations in section 12.7.3.3 because it recognizes that these regulations also impact the products covered by this rulemaking.

Companies that produce a wide range of regulated products may be faced with more capital and product development expenditures than competitors with a narrower scope of products. Regulatory burdens can prompt companies to exit the market or reduce their product offerings, potentially reducing competition. Smaller companies in particular can be affected by regulatory costs since these companies have lower sales volumes over which they can amortize the costs of meeting new regulations. A proposed standard is not economically justified if it contributes to an unacceptable level of cumulative regulatory burden.

g The compliance date for clothes dryers and room air conditioners is 3 years from the date of publication of the final rule (approximately January 2014).12-53



### 12.7.3.1 DOE Regulations for Other Products Produced by Residential Clothes Dryer and Room Air Conditioner Manufacturers

In addition to the amended energy conservation standards on clothes dryers and room air conditioners, several other Federal regulations and pending regulations apply to other products produced by the same manufacturers. DOE recognizes that each regulation can significantly affect a manufacturer’s financial operations. Multiple regulations affecting the same manufacturer can quickly strain manufacturers’ profits and possibly cause an exit from the

market. Table 12.7.2 lists the other DOE energy conservation standards that could also affect manufacturers of clothes dryers and room air conditioners in the 3 years leading up to and after the compliance date of amended energy conservation standards for these products.12-54



### Table 12.7.2 Other DOE and Federal Actions Affecting the Residential Clothes Dryer and

Room Air Conditioner Industries

Regulation Approximate

Compliance

Date* Number of Impacted Companies from the

Market and Technology Assessment (MTA)

(See C hapter 3) Estimated Total Industry

Conversion Costs Clothes Dryers Room Air Conditioners

ASHRAE Products 2012 0 0 N/A Packaged Terminal Air

Conditioners and Packaged Terminal Heat Pumps 2012 4 5 $17.3 million (2007$) h

Cooking Products 2012 10 6 $22.6 million (2006$) i

Residential Boilers 2012 0 1 N/A †

General Service Fluorescent Lamps and

Incandescent Reflector Lamps 2012 2 1 $363.1 million (2008$) j

Dehumidifiers 2012 5 3 N/A††† Beverage Vending

Machines 2012 1 0 $14.5 million (2008$) k

Commercial Clothes

Washers 2013 6 2 $20.4 million (2008$) l

Direct Heating Equipment 2013 0 0 $5.39 million (2009$) m

Residential Pool Heaters 2013 0 0 $0.3 million (2009$) n Battery Chargers and External Power Supplies 2013* 3 3 N/A ††

h Estimated industry conversion expenses were published in the TSD for the October 2008 packaged terminal air conditioners and packaged terminal heat pumps final rule. 73 FR 58772. The TSD for the 2008 packaged terminal air conditioners and packaged terminal heat pumps final rule can be found at http://www1.eere.energy.gov/buildings/appliance_standards/commercial/ptacs_pthps_final_tsd.html.

i Estimated industry conversion expenses were published in the TSD for the April 2009 residential cooking products final rule. 74 FR 16040. The TSD for the 2009 residential cooking products final rule can be found at

ht tp://www1.eere.energy.gov/buildings/appliance_standards/residential/cooking_products_final_rule_tsd.html.
j Estimated industry conversion expenses were published in the TSD for the July 2009 general service fluorescent lamps and incandescent reflector lamps final rule. 74 FR 34080. The TSD for the 2009 lamps final rule can be found

at
htt p://www1.eere.energy.gov/buildings/appliance_standards/residential/incandescent_lamps_standards_final_rule_ts

d.html.

k Estimated industry conversion expenses were published in the TSD for the August 2009 beverage vending machines final rule. 74 FR 44914. The TSD for the 2009 beverage vending machines final rule can be found at

htt p://www1.eere.energy.gov/buildings/appliance_standards/commercial/beverage_machines_final_rule_tsd.html.

l Estimated industry conversion expenses were published in the TSD for the January 2010 commercial clothes
washers final rule. 75 FR 1122. The TSD for the 2010 commercial clothes washers final rule can be found at http://www1.eere.energy.gov/buildings/appliance_standards/commercial/clothes_washers_ecs_final_rule_tsd.html

m Estimated industry conversion expenses were published in the TSD for the April 2010 heating products final rule.

75 FR 20112. The TSD for the 2010 heating products final rule can be found at http://www1.eere.energy.gov/buildings/appliance_standards/residential/heating_products_fr_tsd.html.

n Estimated industry conversion expenses were published in the TSD for the April 2010 heating products final rule.

75 FR 20112. The TSD for the 2010 heating products final rule can be found at http://www1.eere.energy.gov/buildings/appliance_standards/residential/heating_products_fr_tsd.html.12-55

Residential Refrigerators

and Freezers 2014* 10 5 N/A ††

Room Air Conditioners 2014* 5 N/A N/A ††

Residential Clothes Dryers 2014* N/A 5 N/A ††

Fluorescent Lamp Ballasts 2014* 2 1 N/A ††

Walk

- In Freezers and

Coolers 2015* 0 0 N/A ††
Metal Halide Lamp

Fixtures 2015* 0 0 N/A ††

Residential Clothes

Washers 2015* 12 5 N/A ††

Small Electric Motors 2015 0 0 $51.2 million (2009$) o

Residential Water Heaters 2015 2 1 $95.9 million (2009$) p

Commercial Electric

Motors 2015* 2 1 N/A ††

Residential Furnaces 2015* 2 1 N/A ††

Commercial Distribution

Transformers 2016* 2 1 N/A ††
Commercial Refrigeration Equipment 2016* 0 0 N/A ††

Residential Central Air

Conditioners 2016* 2 2 N/A ††
*The dates listed are an approximation. The exact dates are pending final DOE action. † Energy conservation standards and compliance dates for residential boilers can be found at 10 CFR 430.32(e)(2)(ii)-(iv). †† For energy conservation standards for rulemakings awaiting DOE final action, DOE does not have a finalized estimated total industry conversion cost. ††† For minimum performance requirements prescribed by the Energy Independence and Security Act of 2007 (EISA 2007), DOE did not estimate total industry conversion costs because an MIA was not completed as part of a rulemaking. Pub. L. 110-140. EISA 2007 made numerous amendments to the Energy Policy and Conservation Act (EPCA) of 1975, Pub. L. 94-163, (42 U.S.C. 6291–6309), which established an energy conservation program for major household appliances and industrial and commercial equipment.



### Some Federal DOE regulations have a more significant impact on manufacturers of clothes dryers and room air conditioners than others because manufacturers hold a significant market share in those covered products. Table 12.7.3 below shows the DOE energy conservation standards with compliance dates within three years of clothes dryers and room air conditioners where manufacturers are expected to be most impacted due to their market positions. For these rulemakings, clothes dryer and room air conditioner manufacturers would likely be burdened by a significant portion of the estimated industry conversion costs. In some cases, specific market share data was not available, but manufacturers were identified as major or minor manufacturers in the given market when this information was publicly available.

o Estimated industry conversion expenses were published in the TSD for the March 2010 small motors final rule. 75

FR 10874. The TSD for the 2010 small motors final rule can be found at http://www1.eere.energy.gov/buildings/appliance_standards/commercial/sem_finalrule_tsd.html.

p Estimated industry conversion expenses were published in the TSD for the April 2010 heating products final rule.

75 FR 20112. The TSD for the 2010 heating products final rule can be found at http://www1.eere.energy.gov/buildings/appliance_standards/residential/heating_products_fr_tsd.html.12-56



### Table 12.7.3 DOE Regulations on Products For Which Clothes Dryer and Room Air Conditioner Manufacturers Hold Significant Market Share
Manufacturer Market Share in DOE Regulated Product

Regulation Estimated

Industry

Total Conv. Expenses (millions) GE Whirlpool Electrolux LG Samsung Haier Carrier

Packaged

Terminal Air
Conditioners and Packaged

Terminal Heat Pumps $17.3

million (2007$) N/A

(major) N/A

(major) N/A (minor) N/A (major)

Ranges and

Ovens $22.6

million (2006$) 47%

(electric); 37% (gas) 29%

(electric); 25% (gas) 8%

(electric); 23% (gas) N/A

(major) N/A

(minor) N/A

(minor)

General

Service

Fluorescent Lamps and
Incandescent

Reflector Lamps $363.1

million (2008$) N/A

(major)

Dehumidifiers N/A 35% 6% 35% 3%

Commercial

Clothes

Washers $20.4

million (2008$) N/A

(major) N/A

(major) N/A

(minor) N/A

(minor)

Room Air
Conditioners N/A 13% 32% 5% 8%

Residential
Clothes Dryers N/A 16% (electric); 10% (gas) 8%

(electric); 5% (gas) N/A

(minor) N/A

(minor) N/A

(minor)

Fluorescent Lamp Ballasts N/A N/A (major)

Residential

Clothes

Washers N/A 16% 64% 6% 6%

Residential Refrigerators

and Freezers N/A 27% (refrig

. ) 33%

(refrig

. ) 64%

(freezers);

23% (refrig

. ) 16% (freezers);

6% (refrig. )

Central Air

Conditioners N/A 27%

Furnaces N/A 32%



### 12.7.3.2 Other Federal Regulations

EPA HCFC Ban
In 1992, the Montreal Protocol was amended to establish a schedule for the phaseout of HCFCs (hydrochlorofluorocarbons) to curb ozone depletion. This included HCFC-22, also known as R-22, which was the refrigerant most commonly found in room air conditioners and other residential heating and air-conditioning systems. Manufacturers were required to cease using virgin R-22 in new equipment as of January 1, 2010. As such, this ban required manufacturers of room air conditioners to convert all of their products to an alternate refrigerant (most commonly R-410A). DOE acknowledges that the transition to R-410A required significant12-57



### investment and engineering effort, but because the compliance date of the R-22 ban does not fall within three years of the estimated compliance date for room air conditioners, DOE did not account for the conversion costs required for manufacturers to comply with the regulation as part of the cumulative regulatory burden. The engineering analysis, however, does account for the

ban on R- 22. See chapter 5 for information on how the cost-efficiency curves were modified to

account for the use of R-410A.

Potential Climate Change and Greenhouse Gas Legislation
Many manufacturers expressed concern about potential climate change legislation. One proposed regulation that would exacerbate the manufacturer burden caused by more stringent energy conservation standards on refrigeration products is H.R. 2454, the American Clean Energy and Security Act of 2009. This legislation would initiate a phase- dow n of hydrofluorocarbons (HFCs) and would make the amended energy conservation standard levels considered in this rulemaking more difficult to achieve. Manufacturer were particularly concerned that these regulations could impact U.S. heat pump dryer designs in the future.

12.7.3.3 Other Regulations That Could Impact Clothes Dryer and Room Air

Conditioner Manufacturers

While the cumulative regulatory burden focuses on the impacts on manufacturers of other Federal requirements, in this section DOE has described a number of other regulations below that could also impact the clothes dryers and room air conditioners covered by this rulemaking

UL Fire Containment Standard
The UL fire containment standard (UL 2158) was a major regulatory burden manufacturers mentioned during interviews and in written comments. Because the compliance date of the UL standard falls within three years of the estimated compliance date for clothes dryers, DOE accounted for the conversion costs required for manufacturers to comply with the UL regulation as part of the cumulative regulatory burden.

For the UL conversion costs, DOE used the same per product line market data used to calculate the conversion costs to comply the amended energy conservation standards. However, since the UL regulation only applies to electric dryers, DOE calculated the capital and product conversion costs for product classes 1, 2, 3, 5 and 6 only. Manufacturers mentioned a range of estimated engineering time and capital changes that would be required for the UL regulati on

. These estimates varied due to the different approaches manufacturers would take to comply with UL 2158, the resources already devoted to examining the regulation’s impact, and the design of products that would be impacted. Because of the range of responses and circumstances, DOE took a representative number for both product and capital conversion costs and multiplied by the number of total platforms in each electric product class. DOE assumed that these estimates of the product and capital conversion costs would occur in 2012, the year before the compliance date of the regulation. Finally, because the UL regulation is not due to amended energy conservation standards, DOE applied these costs in both the base case and the standards case, which lowers the industry value in both.

State Energy Conservation Standards12-58



### Manufacturers indicated that California has several programs that are either already in place or are currently in development that affect manufacturers of residential clothes dryers and room air conditioners. Various building, electrical, mechanical, and plumbing codes in California affect clothes dryers and room air conditioners, and products are also subject to California’s laws on the Restriction on the use of certain Hazardous Substances (RoHS). California’s RoHS law took effect January 1, 2007 and was modeled after the EU’s directive (described below), which bans certain hazardous substances from electrical and electronic equipment.

International Energy Conservation Standards
Residential clothes dryer and room air conditioner manufacturers that sell products outside of the United States are subject to several international energy conservation standards. In the EU, products are also subject to RoHS. This regulation bans the sale of new equipment in the EU that contains more than agreed levels of lead, cadmium, mercury, hexavalent chromium, polybrominated biphenyl (PBB) and PBDE flame retardants. Waste Electrical and Electronic Equipment (WEEE) and the Registration, Evaluation, Authorization, and restriction of Chemicals (REACH) are additional regulations that create compliance costs for manufacturers that compete in Europe. REACH deals with chemicals and their safe use and has provisions that will be phased-in over eleven years, beginning June 1, 2007. The EU also sets limits for the amount of energy consumed by equipment when it is in standby mode and off mode. Additionally, HFCs are banned in refrigerants in several countries, such as Austria, Denmark, and Switzerland. Canada and several other foreign countries have regulations or have initiated regulations affecting clothes dryer and room air conditioner manufacturers.

12.8 CONCLUSION

The following sections summarize the different impacts for the scenarios DOE believes are most likely to capture the range of impacts on residential clothes dryer and room air

conditioner manufacturers at each TSL in the standards case. While these scenarios bound the range of the most plausible impacts on manufacturers, some circumstances could cause manufacturers to experience impacts outside this range.

12.8.1 Residential Clothes Dryers

TSL 1 represents the baseline CEF for 120V electric compact clothes dryers (product class 2), 240V electric compact clothes dryers (product class 3), 240V compact ventless clothes dryers (product class 5), and electric combination ventless clothes dryers (product class 6). TSL 1 represents a CEF of 3.56 for standard-size vented electric clothes dryers (product class 1) and a CEF of 3.16 for gas vented clothes dryers (product class 4). At TSL 1, DOE estimates impacts on INPV to range -$2.55 million to -$2.62 million, or a change in INPV of -0.3 percent. At this proposed level, industry free cash flow is estimated to decrease by approximately 1.6 percent to $68.6 million, compared to the base-case value of $69.7 million in the year leading up to the proposed energy conservation standards.

The design options DOE analyzed for product class 1 and 4 include lowering standby power consumption only. Standby power changes would result in only minor changes to baseline products and would take a minimal effort by manufacturers to comply with the amended energy conservation standards. The standby power changes at TSL 1 would require relatively small12-59



### product development efforts to reach the CEF levels and would not change the assembly of currently products, greatly limiting the necessary capital conversion costs. In addition, the design options for standby power do not add significant costs to existing products. Therefore, the impact on manufacturers is very small at TSL 1.

TSL 2 represents a CEF of 3.61 for product class 1, a CEF of 3.61 for product class 2, a CEF of 3.27 for product class 3, a CEF of 3.20 for product class 4, a CEF of 2.69 for product class 5, and a CEF of 2.56 for product class 6. At TSL 2, DOE estimates impacts on INPV to range -$3.6 million to -$4.9 million, or a change in INPV of -0.4 percent to -0.5 percent. At this proposed level, industry free cash flow is estimated to decrease by approximately 3.0 percent to $67.6 million, compared to the base-case value of $69.7 million in the year leading up to the proposed energy conservation standards.

The design options analyzed at TSL 2 for product classes 1 through 5 represent improvements to standby power consumption only. The changes required at TSL 2 would not greatly alter baseline products for these product classes because these analyzed design options are small component changes for standby power for product classes 1 through 5.The design options analyzed for product class 6 include changes to active mode power consumption. However, these active mode changes for product class 6 are also relatively minor and would take a minimal effort by manufacturers to comply with the amended energy conservation standards. For product class 6, the analyzed design option for active mode is automatic cycle termination technology which adds very little cost to the product and takes minimal capital and product conversion costs to implement. Because the changes for product class 1 through 5 only include standby power changes and the active mode changes for product class 6 are minor, the impact on manufacturers is very small at TSL 2.

The efficiency requirements for product classes 2 to 6 are the same at TSL 3 as at TSL 2. TSL 3, however, represents a further improvement to a CEF of 3.73 for product class 1. At TSL 3, DOE estimates impacts on INPV to range from -$41.1 million to -$55.5 million, or a change in INPV of -4.1 percent to -5.5 percent. At this proposed level, industry free cash flow i s estimated to decrease by approximately 34.2 percent to $45.9 million, compared to the base-case value of $69.7 million in the year leading up to the proposed energy conservation standards.

The design options DOE analyzed for product class 1 include improvements to standby and active power consumption (airflow improvements, a dedicated heater duct, and an open cylinder drum). While the actual design path taken by manufacturers could vary at TSL 3, these technologies represent incremental improvements and are well known in the industry. The changes for design options analyzed for product class 1 would require both changes to production equipment and product development costs. These design options would not greatly alter the production process for product class 1 and could be made within most existing products. The conversion costs to implement these changes are also relatively low compared to the total value of the industry. The industry impacts would increase at TSL 3, however, because for product class 1, manufacturers would have to make changes for a large volume of the common

standard-size electric models.

TSL 4 represents the baseline efficiency for product classes 5 and 6. TSL 4 also represents the same efficiency requirements for product classes 2 and 3 as TSL 2 and TSL 3.12-60



### TSL 4 also has the same efficiency requirements for product class 1 as TSL 3, but represents a 3.30 CEF for product class 4. At TSL 4, DOE estimates impacts on INPV to range -$64.5 million to -$80.6 million, or a change in INPV o f -6.4 percent to -8.0 percent. At this proposed level, industry free cash flow is estimated to decrease by approximately 49.8 percent to $35.0 million, compared to the base-case value of $69.7 million in the year leading up to the proposed energy

conservation standards.

The impacts at TSL 4 are due primarily to the efficiency requirements for product classes 1 and 4 because all other product classes are at baseline efficiency or could be met with changes to standby power consumption. For both product classes 1 and 4, DOE analyzed changes to standby power consumption and the same improvements to active mode power consumption for both gas and electric units (airflow improvements, a dedicated heater duct, and an open cylinder drum). As with TSL 3, while the actual design path taken by manufacturers could vary at TSL 4, these technologies represent incremental improvements to most products and are well known in the industry. Industry impacts would increase at TSL 4, however, because for both product classes 1 and 4, the changes would require improvements in the most common standard-size gas and electric products on the market today. The changes for design options analyzed for product class 1 and 4 would require both changes to production equipment and product development costs. These design options would not greatly alter the production processes for either product class and could be made within most existing products. The conversion costs to implement these changes for both product class 1 and 4 are still relatively low compared to the total value of the industry.

TSL 5 represents a CEF of 4.08 for product class 1, a CEF of 4.08 for product class 2, a CEF of 3.60 for product class 3, a CEF of 3.61 for product class 4, a CEF of 2.80 for product class 5, and a CEF of 2.56 for product class 6. At TSL 5, DOE estimates impacts on INPV to range -$176.5 million to -$397.4 million, or a change in INPV of -17.6 percent to -39.6 percent. At this proposed level, industry free cash flow is estimated to decrease by approximately 249.7 percent to -$104.4 million, compared to the base-case value of $69.7 million in the year leading

up to the proposed energy conservation standards.

Most of the impacts on INPV at TSL 5 are due to the efficiency requirements for product classes 1 through 4. Very few products on the market today meet the efficiency requirements at TSL 5, and for product classes 1 through 4, TSL 5 represents the most efficient units currently on the market. The design options DOE analyzed for these product classes included similar design options for all product classes as for product classes 1 and 4 at TSL 4 (airflow improvements, a dedicated heater duct, and an open cylinder drum) plus additional changes. In addition to airflow improvements, a dedicated heater duct, and an open cylinder drum, the design options analyzed by DOE also include modulating heat, inlet air preheating, and a more efficient fan motor. Out of all these design options used the reach the required efficiencies at TSL 5, inlet air preheating would require the most substantial changes to existing products because it would change the ducting system. This change would impact drum stamping equipment and, possibly, the fabrication of the cabinets for some product lines. The impacts also increase dramatically at TSL 5 due to the large increase in production costs for the additional design options beyond those needed to reach the required efficiencies at TSL 4. The large incremental costs result in lower shipments due to the price elasticity. These additional costs also cause a greater impact on INPV12-61



### if manufactures are unable to earn additional profit on these added costs (under the preservation of operating profit markup scenario).

TSL 6 represents the max-tech level for all product classes. The max-tech level corresponds to a CEF of 5.42 for product class 1, a CEF of 5.41 for product class 2, a CEF of 4.89 for product class 3, a CEF of 3.61 for product class 4, a CEF of 4.03 for product class 5, and a CEF of 3.69 for product class 6. At TSL 6, DOE estimates impacts on INPV to range -$303.9 million to -$730.0 million, or a change in INPV of -30.3 percent to -72.7 percent. At this proposed level, industry free cash flow is estimated to decrease by approximately 467.5 percent to -$256.2 million, compared to the base-case value of $69.7 million in the year leading up to the proposed energy conservation standards.

At TSL 6, the efficiency requirements for all electric clothes dryers would effectively require a heat pump clothes dryer. Currently, there are no heat pump clothes dryers on the market in the United States. Manufacturing exclusively heat pump clothes dryers would be extremely disruptive to existing manufacturing facilities. A heat pump standard would require a total renovation of existing facilities and would force the industry to design completely new clothes dryer platforms. The capital conversion costs for these changes are extremely large―more than double the capital conversion costs calculated for these products to meet TSL 5. The product development costs to manufacturer heat pump clothes dryers also increase substantially because manufacturers must not only redesign clothes washer platforms, but also design the heat pump system. Manufacturers also indicated that training their service and installation network to use a completely different technology would be extremely costly, as would the cost to educate consumers. Finally, the impacts on INPV are also great at TSL 6 because the cost of a heat pump clothes dryer is more than double a minimally compliant clothes dryer in the market today. If manufactures are unable to earn additional profit on these production costs, profitability is severely impacted.

12.8.2 Room Air Conditioners

TSL 1 represents a CEER of 9.30 for product class 8A (without reverse cycle and without louvered sides―8,000 to 10,999 Btu/h) and product class 8B (without reverse cycle and without louvered sides―11,000 to 13,999 Btu/h), 9.40 for product class 5A (without reverse cycle and with louvered sides―20,000 to 24,999 Btu/h) and product class 5B (without reverse cycle and with louvered sides―25,000 Btu/h and more), 10.10 for product class 1 (without reverse cycle and with louvered sides―less than 6,000 Btu/h), and 10.70 for product class 3 (without reverse cycle and with louvered sides―8,000 to 13,999 Btu/h). At TSL 1, DOE estimates impacts on INPV to range from -$44.2 million to -$84.9 million, or a change in INPV of -4.6 percent to -8.9 percent. At this proposed level, industry free cash flow is estimated to decrease by approximately 27.7 percent to $62.4 million, compared to the base-case value of $86.3 million in the year leading up to the proposed energy conservation standards.

The INPV impacts at TSL 1 are relatively minor, in part because the vast majority of manufacturers produce units that exceed this level (i.e. , ENERGY STAR and other high efficiency units) in significant volumes. Approximately 60 percent of product class 3 shipments, 85 percent of product class 5A and 5B shipments, and 90 percent of product class 8A and 8B shipments currently meet this TSL. By contrast, the vast majority of product class 1 shipments12-62



### are baseline units. Although most of the design options DOE analyzed at this proposed level are one-for-one component swaps, some more complex design options that would be required at TSL 1 necessitate more substantial changes. These design options that have a significant impact on conversion costs at TSL 1 are heat exchanger changes and increased chassis volumes. Changes to the condenser or evaporator require machinery for new dies for every product line and require greater design effort than component swaps. Increased chassis volumes require a complete redesign of the product and substantial tooling to make the unit larger. Although some room air conditioners, particularly those in product class 1, will require these changes at TSL 1, these changes would not be required across the entire industry because the majority of units in most product classes already meet TSL 1. As such, DOE estimated total product conversion costs of $22 million and capital conversion costs of $46 million, which is relatively low compared to the industry value of $956 million.

The efficiency requirements for product class 3, product class 5A, product class 5B, product class 8A, and product class 8B are the same at TSL 2 as TSL 1. Thus, the only change from TSL 1 occurs for product class 1, which requires a CEER of 10.60 at TSL 2. DOE estimates the INPV impacts at TSL 2 range from -$65.4 million to -$112.7 million, or a change in INPV of -6.8 percent to -11.8 percent. At this proposed level, the industry cash flow is estimated to decrease by approximately 40.5 percent to $51.4 million, compared to the base-case value of $86.3 million in the year leading up to the proposed energy conservation standard.

The additional impacts at TSL 2 relative to TSL 1 result from the further improvements manufacturers must make to meet a CEER of 10.6 for product class 1. Most units in product

cl ass 1 would need to increase their chassis size even further than at TSL 1 in order to meet TSL 2, resulting in estimated product and capital conversion costs of $29 million and $69 million, respectively.

TSL 3 represents different efficiency levels for every product class compared to TSL 2. TSL 3 represents the baseline CEERs of 8.47 and 8.48 for product classes 5A and 5B, respectively, meaning that no amended standards would be set and no impacts on INPV would occur. TSL 3 represents a CEER of 9.50 for product class 8B, 9.60 for product class 8A, 10.10 for product class 1, and 10.90 for product class 3. DOE estimates the INPV impacts at TSL 3 to range from -$65.7 million to -$112.4 million, or a change in INPV of -6.9 percent to -11.8 percent. At this proposed level, the industry cash flow is estimated to decrease by approximately 40.5 percent to $51.4 million, compared to the base-case value of $86.3 million in the year leading up to the standards.

At TSL 3, several product classes require design options that increase conversion costs. For product class 1, some units would require increased chassis volumes, though not as substantially as at TSL 2. For product class 3, all smaller units would require chassis changes, driving the majority of the conversion costs at TSL 3. For product classes 8A and 8B, some changes to the heat exchangers would be required. However, no conversion costs would be applied to product classes 5A and 5B, resulting in total product and capital conversion costs at TSL 3 of $41 million and $61 million, respectively.

TSL 4 represents the same efficiency requirements as TSL 3 for product classes 3, 8A, and 8B. For product class 5B, TSL 4 represents a CEER of 9.00. For product class 5A, TSL 412-63



### represents a CEER of 9.40, and for product class 1, TSL 4 represents a CEER of 11.10. DOE estimates the INPV impacts at TSL 4 to range from -$111.3 million to -$177.6 million, or a change in INPV of -11.6 percent to -18.6 percent. At this proposed level, the industry cash flowis estimated to decrease by approximately 69.1 percent to $26.7 million, compared to the basecase value of $86.3 million in the year leading up to the proposed energy conservation standards.

At TSL 4, significant changes to the manufacturing process would be required. Product

cl asses 1, 5A, and 5B would all require increased chassis volumes, and product classes 1 and 5A would also require heat exchanger changes. These design options drive increases of $20 million in product conversion costs and $48 million in capital conversion costs compared to TSL 3.

TSL 5 represents the same efficiency requirements as TSL 4 for product classes 1 and 8B. For product classes 5A and 5B, TSL 5 represents the baseline CEERs of 8.47 and 8.48, respectively, so all impacts of TSL 4 on these product classes, such as chassis changes, would not be required. For product class 8A, TSL 5 represents a CEER of 10.00, and for product class 3, TSL 5 represents a CEER of 11.50. DOE estimates the INPV impacts at TSL 5 to range from - $86.6 million to -$184.4 million, or a change in INPV of -9.1 percent to -19.3 percent. At this proposed level, the industry cash flow is estimated to decrease by approximately 69.3 percent to $26.5 million, compared to the base-case value of $86.3 million in the year leading up to the proposed energy conservation standards.

At TSL 5, impacts are negative under both scenarios due to the high conversion costs that exist at TSL 5. Although capital conversion costs would be $8 million lower at TSL 5 than at TSL 4 due to the removal of any capital costs associated with product classes 5A and 5B (despite higher capital costs for product class 3), product conversion costs are $13 million higher at TSL 5 compared to TSL 4 because a greater number of product lines would need to be redesigned at

this level.

TSL 6 represents max-tech for all room air conditioners. The max-tech level corresponds to CEERs of 9.80, 10.02, 10.15, 10.35, 11.67, and 11.96 for product classes 5B, 8B, 5A, 8A, 1, and 3, respectively. DOE estimates the INPV impacts at TSL 6 to range from -$80.2 million to - $344.5 million, or a change in INPV of -8.4 percent to -36.0 percent. At this proposed level, the industry cash flow is estimated to decrease by 124.8 percent to -$21.4 million, compared to the base-case value of $86.3 million in the year leading up to the proposed energy conservation

standards.

At TSL 6, all products would need to be fully redesigned, resulting in large product and capital conversion costs of $117 million and $193 million, respectively. These conversion costs are mostly driven by the high-volume product classes 1 and 3 and their associated chassis and heat exchanger changes.12-64



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< 

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