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 ...................12-27
12-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 Impacts.........................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

International 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 .........................................................................12-19
12-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 ............................................................................12-32
12-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

...........................................................................................................................................12-42
12-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

...........................................................................................................................................12-50
12-6 

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 in 

the 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 for 
12-8 

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 subgroups 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, and 
12-9 

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 businesses 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 

regulations 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 unit 

profit 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.6
12-16 

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&D 
12-17 

• 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 ruleb

 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

IndustryWeighted 

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

IndustryWeighted 

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 risk-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 

2006 (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 the 
12-20 

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

industries. DOE added the industry-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

IndustryWeighted 

Average 

%

Manufacturer

A B C

S&P Bond Rating -- B- BBB BBB

(1) Yield 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 

(without 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 classesc

 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 6 
12-21 

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 

 

(without 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 (with

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 

Btu/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 Scenariod

(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 34,212

Product Class 6 - Electric Combination Ventless 

Dryers 34,212

 

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 2014e (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 in the MPCs 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 

volumes 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

$

Mfr.

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

$

Mfr.

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

$

Mfr.

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 1.26 602.30 
12-27 

Table 12.4.13 MPC Breakdown for Product Class 4 in 2009 - Gas Vented Dryers 

TSL

(Efficiency 

Level)

CEF Labor

$

Material

$

Overhead

$

Depreciation

$

MPC

$

Mfr.

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

$

Mfr.

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

$

Mfr.

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 Estimates 
12-28 

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

$

Matl.

$

Overhead

$

Depr.

$

MPC

$

Shipping

$

Mfr.

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

$

Matl.

$

Overhead

$

Depr.

$

MPC

$

Shipping

$

Mfr.

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

$

Matl.

$

Overhead

$

Depr.

$

MPC

$

Shipping

$

Mfr.

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, TSL 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

$

Matl.

$

Overhead

$

Depr.

$

MPC

$

Shipping

$

Mfr.

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, TSL 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 1.26 817.24
12-29 

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

$

Matl.

$

Overhead

$

Depr.

$

MPC

$

Shipping

$

Mfr.

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 major 

groups: 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

$

Matl.

$

Overhead

$

Depr.

$

MPC

$

Shipping

$

Mfr.

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 1.26 428.88
12-30 

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 Options 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 275.5 347.5
12-31 

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 Options Considered

Product 

Conversion 

Costs

2009$ millions

Capital 

Conversion 

Costs

2009$ millions

TSL 2, TSL 3, TSL 4 

(EL 2) 3.61 Standby - Switchmode PSStandby - 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 Options Considered

Product 

Conversion 

Costs

2009$ millions

Capital 

Conversion 

Costs

2009$ millions

TSL 2, TSL 3, TSL 4 

(EL 2) 3.27 Standby - Switchmode PSStandby - 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 Options 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

73.9 144.9
12-32 

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 Options 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 Options 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 be 
12-33 

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 show 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 Air 

Conditioners without Reverse Cycle and with Louvered Sides - Less than 6,000 Btu/h by 

TSL 

TSL (Efficiency 

Level) CEER Design Options Considered

Product 

Conversion 

Costs

2009$ millions

Capital 

Conversion 

Costs

2009$ millions

TSL 1, TSL 3 (EL 1) 10.1

Standby Reduction

Increase evaporator 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 Condenser to 3 Tubes 31.7 56.7

TSL 6 (EL 5) 11.7

EL 3 Design Options +

Increase PSC Efficiency

Increase Evaporator Fin Thickness

DC Brushless Motor

41.6 63.0
12-34 

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 Options 

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 Compressor

Efficiency

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 Evaporator 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 Options Considered

Product 

Conversion 

Costs

2009$ millions

Capital 

Conversion 

Costs

2009$ millions

TSL 1, TSL 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 Efficiency

Increase PSC Efficiency

DC Brushless Motor

3.3 16.6
12-35 

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 Options 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, TSL 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 Options 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 1.9
12-36 

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 Options 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 the 
12-37 

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 could 

severely 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 Markups 
12-38 

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 1.2600 - - - - -

EL 2

(3.61)

1.2600 1.2600 1.2600 - - - -

EL 3

(3.73)

1.2600 1.2600 1.2600 1.2579 1.2579 - -

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 1.2412 -

EL 6

(5.42)

1.2600 1.2600 1.2600 1.2600 1.2600 1.2600 1.2269

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 1.2376 -

EL 6

(5.41)

1.2600 1.2600 1.2600 1.2600 1.2600 1.2600 1.2272
12-39 

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

(3.16)

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 1.2399 -

EL 6

(4.89)

1.2600 1.2600 1.2600 1.2600 1.2600 1.2600 1.2284

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

(3.16)

1.2600 1.2599 - - - - -

EL 2

(3.20)

1.2600 1.2600 1.2600 1.2600 - - -

EL 3

(3.30)

1.2600 1.2600 1.2600 1.2600 1.2584 - -

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 1.2402 1.2402

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 1.2571 1.2571 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 1.2513 -

EL 5

(4.03)

1.2600 1.2600 1.2600 1.2600 1.2600 1.2600 1.2391
12-40 

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 1.2548 1.2548 1.2600 1.2548 -

EL 5

(3.69)

1.2600 1.2600 1.2600 1.2600 1.2600 1.2600 1.2410

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 1.2308
12-41 

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 1.2547 1.2547 1.2547 1.2547 - -

EL 4

(11.5) 1.2600 1.2600 1.2600 1.2484 1.2484 1.2484 -

EL 5

(12.0)

1.2600 1.2600 1.2600 1.2600 1.2600 1.2358 1.2358

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 1.2488 1.2488 1.2600 1.2488 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 1.2278
12-42 

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 1.2573 1.2573 1.2573 1.2573 - -

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 1.2343 1.2343

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 1.2547 1.2547 1.2547 1.2547 1.2547 -

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 GRIMs 

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 to 
12-44 

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

operations. 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 

(Preservation 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 Dryers 

-300.0

-250.0

-200.0

-150.0

-100.0

-50.0

0.0

50.0

100.0

150.0

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2009$ Millions

Year

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

Estimated Energy Conservation 

Standards Compliance Date -

January 2014

-300.0

-250.0

-200.0

-150.0

-100.0

-50.0

0.0

50.0

100.0

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2009$ Millions

Year

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

Estimated Energy Conservation 

Standards Compliance Date -

January 2014
12-46 

(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 Markup 

-40.0

-20.0

0.0

20.0

40.0

60.0

80.0

100.0

120.0

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2009$ Millions

Year

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

Estimated Energy Conservation Standards Compliance Date -

January 2014
12-47 

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 during 

manufacturer 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 owned 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 by 

-40.0

-20.0

0.0

20.0

40.0

60.0

80.0

100.0

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2009$ Millions

Year

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

Estimated Energy Conservation Standards Compliance Date -

January 2014
12-48 

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 air 

conditioners 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 only 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 industries. 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 included 
12-49 

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 represent 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 

moved 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 $140 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 304 nonproduction 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 

above 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 Total 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 produce 

0 

1,000 

2,000 

3,000 

4,000 

5,000 

6,000 

7,000 

8,000 Total Domestic Employment (# of workers)

Year

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

Energy Conservation Standards 

Compliance Date

January 2014
12-51 

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 in 

heat 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 because 
12-52 

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 Chapter 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 

http://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

http://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 

http://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 significant 
12-57 

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-down 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 regulation. 

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 Standards 
12-58 

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 small 
12-59 

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 is 

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. 
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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 of -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 INPV 
12-61 

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 shipments 
12-62 

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 

class 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 4 
12-63 

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 flow 

is 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 

classes 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 

REFERENCES 

 

1 Securities and Exchange Commission, Annual 10-K Reports, Various Years, 

Washington DC. <www.sec.gov>. 

2 Standard and Poors Financial Services LLC, Company Credit Ratings, Various 

Companies, New York, NY. < www2.standardandpoors.com>.

3 Association of Home Appliance Manufacturers. Current Members. Last Accessed 

December 2, 2009. < http://www.aham.org/ht/d/Organizations/divisions/Y/pid/2344>.

4 California Energy Commission. Appliance Efficiency Database. 

<http://www.appliances.energy.ca.gov/QuickSearch.aspx> 

5 ENERGY STAR. Qualified Room Air Conditioners.

<http://www.energystar.gov/index.cfm?fuseaction=roomac.display_products_html >.

6 McKinsey & Company, Inc. Valuation: Measuring and Managing the Value of 

Companies, 3rd Edition, Copeland, Koller, Murrin. New York: John Wiley & Sons, 2000.