12

- i

CHAPTER 1 2

. PRELIMINARY MANUFACTURER IMPACT ANALYSIS

TABLE OF CONTENTS

12.1 INTRODUCTION ......................................................................................................... 12 -1 12.2 METHODOLOGY ........................................................................................................ 12 -1 12.2.1 Phase I: Industry Profile..................................................................................... 12 -2 12.2.2 Phase II: Industry Cash Flow Analysis and Interview Guide ............................ 12-2 12.2.2.1 Industry Cash Flow Analysis ........................................................... 12-2 12.2.2.2 Interview Guide ............................................................................... 12 -2 12.2.3 Phase III: Subgroup Analysis............................................................................. 12 -3 12.2.3.1 Manufacturer Interviews .................................................................. 12 -3 12.2.3.2 Revised Industry Cash Flow Analysis ............................................. 12 -3 12.2.3.3 Manufacturer Subgroup Analysis .................................................... 12 -3 12.2.3.4 Competitive Impact Assessment ...................................................... 12 -4 12.2.3.5 Manufacturing Capacity Impact ...................................................... 12 -4 12.2.3.6 Employment Impact ......................................................................... 12 -4 12.2.3.7 Cumulative Regulatory Burden ....................................................... 12-4 12.3 INDUSTRY OVERVIEW ............................................................................................. 12-5 12.3.1 Industry Cost Structure ...................................................................................... 12 -5 12.3.2 Inventory Levels ................................................................................................ 12-6 12.4 INTERVIEW TOPICS AND PRELIMINARY FINDINGS ......................................... 12 -6 12.4.1 Market Shares and Industry Consolidation ........................................................ 12-7 12.4.2 Production and Product Mix .............................................................................. 12 -7 12.4.2.1 Impact on Product Mix .................................................................... 12 -8 12.4.2.2 Product Utility .................................................................................. 12 -8 12.4.3 Conversion Costs ............................................................................................... 12-8 12.4.4 Cumulative Regulatory Burden ......................................................................... 12 -8 12.5 OVERALL KEY ISSUES ............................................................................................. 12-9 12.5.1 Rare Earth Materials .......................................................................................... 12-9 12.5.2 Unknown Impacts of the 2009 Lamps Rule ...................................................... 12 -9 12.5.3 Testing Burden ................................................................................................. 12 -10 12.5.4 Technology Shift .............................................................................................. 12-10 12.5.5 Product Innovation ........................................................................................... 12-10 12.5.6 Impact on Residential Sector ........................................................................... 12 -1012

- ii LIST OF TABLES
Table 12.3.1 Electric Lamp Bulb and Part Industry Employment and Earnings ....................... 12-5 Table 12.3.2 Electric Lamp Bulb and Part Industry Material and Payroll Costs....................... 12-6 Table 12.3.3 Commercial Lighting Fixture Industry End- of -Year Inventory ........................... 12-612

- 1

CHAPTER 12. PRELIMINARY MANUFACTURER IMPACT ANALYSIS

12.1 INTRODUCTION
The purpose of the manufacturer impact analysis (MIA) is to identify and quantify the likely impacts of amended energy conservation standards on manufacturers. The Process Rule a provides guidance for conducting this analysis with input from manufacturers and other interested parties. The U.S. Department of Energy (DOE) will apply this methodology to its

e valuation of amended energy conservation standards for general service fluorescent lamps (G SFLs) and incandescent reflector lamps (IRLs). DOE will consider financial impacts and a wide range of quantitative and qualitative industry impacts. For example, a particular standard leve l could require changes to manufacturing practices for GSFLs and IRLs. DOE will identify and analyze these impacts through interviews with manufacturers and other interested parties during the n otice of p roposed rulemaking (NOPR) stage of the analysis.
DOE announced changes to the MIA format through a report issued to Congress in January 2006 (as required by section 141 of the Energy Policy Act of 2005 [EPA ct 2005 ]), entitled “Energy Conservation Standards Activities.” b Previously, DOE did not report any MIA results before the NOPR phase; however, under this new format, DOE collects, evaluates, and reports preliminary information and data in the preliminary analysis. Such information includes market data, key issues, product mixes, conversion costs, foreign competition, market shares, industry consolidation, and cumulative regulatory burden information. DOE solicits this infor mation during the preliminary manufacturer interviews and reports the results in this chapter of the preliminary technical support document (TSD). Appendix 1 2 A includ es a copy of the interview guide that DOE distributed to manufacturers.

12.2 METHODOLOGY

DOE conducts the MIA in three phases. In Phase I, DOE creates an industry profile to characterize the industry and conducts preliminary MIA interviews to identify important issues that require consideration. Section 12.3 of this chapter presents initial findings of the Phase I

a nalysis. In Phase II, DOE prepares an industry cash flow model and an interview questionnaire to guide subsequent discussions with manufacturers. In Phase III, DOE interviews manufacturers

a nd assesses the impacts of amended energy conservation standards both quantitatively and
qua litatively. DOE assesses industry and subgroup cash flow impacts and the industry net present value (INPV) using the Government Regulatory Impact Model (GRIM). DOE then

a ssesses impacts on competition, manufacturing capacity, employment, and regulatory burden,

a On July 15, 1996, the Department of Energy published a Process Improvement Rule establishing procedures, interpretations, and policies to guide the Department in the consideration of new or revised appliance efficiency standards (Procedures for Consideration of New or Revised Energy Conservation Standards for Consumer Products). 61 FR 36974. b This report is available on the DOE website at: www1.eere.energy.gov/buildings/appliance_standards/pdfs/congressional_report_013106.pdf12

- 2

based on manufacturer interviews and discussions. The NOPR and TSD will both present results of the Phase II and III analyse s.

12.2.1 Phase I: Industry Profile

In Phase I of the MIA, DOE collects pertinent qualitative and quantitative financial and market information. This includes research and development (R&D) expenses; selling, general,

a nd administrative (SG&A) expenses; capital expenditures; property, plant, and equipment expenses; tax rate; and depreciation rate f or GSFL and IRL manufacturers, as well as wages, employment, and industry costs for GSFLs and IRLs. Sources of information include reports published by industry groups, trade journals, the U.S. Census Bureau, and Securities Exchange Commission (SEC) 10-K filings. In addition, DOE relies on information from its market and technology assessment, engineering analysis, life-cycle cost analysis, and consumer price analysis, as well as feedback from preliminary manufacturer interviews, to characterize the GSFL and IRL manufacturing industries.

12.2.2 Phase II: Industry Cash Flow Analysis and Interview Guide
Phase II activities occur after publication of the preliminary analysis. In Phase II, DOE performs a preliminary industry cash flow analysis and prepares a questionnaire, or interview
g uide, for interviewing manufacturers.

12.2.2.1 Industry Cash Flow Analysis
DOE uses the GRIM to analyze the financial impacts of amended energy conservation standa rds. The implementation of these standards may require additional investment, raise
pr oduction costs, and/or affect revenue through higher prices and lower shipments. The GRIM

uses se veral factors to determine a series of annual cash flows for the years leading up to the effective date of amended energy conservation standards and for several years after im plementation. These factors include annual expected revenues, costs of sales, SG&A costs,
tax es, and capital expenditures. Inputs to the GRIM include financial information, manufacturing

c osts, shipment forecasts, and price forecasts developed in other analyses. Financial information is developed based on publicly available data and confidentially submitted manufacturer information. DOE compares the GRIM results for the standards case at each trial standard level (T SL) against the results for the base case, in which no amended energy conservation standards are in place. The financial impact of amended energy conservation standards is the difference be tween the two sets of discounted annual cash flows.

12.2.2.2 Interview Guide

DOE conducts interviews with manufacturers to gather information on the effects amended energy conservation standards could have on revenues and finances, direct

e mployment, capital assets, and industry competitiveness. These interviews take place during P hase III of the MIA. Before the interviews, DOE distributes an interview guide that will help identif y the impacts of amended energy conservation standards on individual manufacturers or subg roups of manufacturers within the GSFL and IRL industries. The interview guide covers
pr oduction costs; shipment projections ; market share; product mix; conversion costs; markups12

- 3

and profitability ; assessment of the impact on competition ; manuf acturing capacity; and other

re levant topics.

12.2.3 Phase III: Subgroup Analysis

P hase III activities occur after publication of the preliminary analysis. These activities include manufacturer interviews; revision of the industry cash flow analysis; a manufacturer subgroup analysis; an assessment of the impacts on industry competition, manufacturing

c apacity, direct employment, and the cumulative regulatory burden; and other qualitative impacts.

12.2.3.1 Manufacturer Interviews
DOE supplements the information gathered in Phase I and the cash flow analysis
pe rformed in Phase II with information gathered through interviews with manufacturers during P hase III. The interview process plays a key role in the MIA because it provides an opportunity for interested parties to express their views privately on important issues.

DOE conducts detailed interviews with manufacturers to gain insight into the potential impacts of amended

energy conservation standards on sales, direct employment, capital assets, and industry competitiveness. Interviews are scheduled well in advance to provide every
oppor tunity for key individuals to be available for comment. Although a written response to the
que stionnaire is acceptable, DOE prefers interactive interviews, which help clarify responses and provide the opportunity to identify additional issues.

A non -disclosure agreement allows DOE to consider confidential or sensitive information in the decision-making process. Confidential information, however, is not made available in the public record. At most, sensitive or confidential information may be aggregated and presented in industry-wide representations.

12.2.3.2 Revised Industry Cash Flow Analysis
During the interviews, DOE requests information about profitability impacts, necessary plant c hanges, and other manufacturing impacts. Following the interviews, DOE revises the
pr eliminary GRIM prepared in Phase II based on the feedback it receives during interviews.

12.2.3.3 Manufacturer Subgroup Analysis

The use of average cost assumptions to develop an industry cash flow estimate does not

a dequate ly

assess differential impacts of amended energy conservation standards among manufacturer subgroup s. Smaller manufacturers, niche players, and manufacturers exhibiting a

c ost structure that differs largely from the industry average could be more negatively affected. Ideally, DOE would consider the impact on every firm individually; however, it typically uses the results of the industry characterization to group manufacturers with similar characteristics. During the interviews, DOE discuss es the potential subgroups that have been identified for the analysis. DOE asks manufacturers and other interested parties to suggest what subgroups or characteristics are most appropriate for the analysis.12

- 4

One common subgroup identified is small business manufacturers. Should DOE determine this rulemaking impacts any small business manufacturers, DOE will conduct a regulatory flexibility analysis pursuant to the Regulatory Flexibility Act. (5 U.S.C. 601 et s eq .)

12.2.3.4 Competitive Impact Assessment
Section 342 (6)(B)(i)(V) of the Energy Policy Act of 1992 (EPA ct 1992) directs DOE to consider any lessening of competition likely to result from the imposition of standards. EP A ct 1992 further directs the U.S. Attorney General to determine any likely impacts resulting from a decrease in competition. DOE gathers firm-specific financial information and attempts to determine the impact of amended standards on industry competition. The results of this effort are

re ported in the competitive impact assessment. The competitive impact assessment is based on manufactur er cost data and information collected from the manufacturer interviews. The int erviews focus on assessing asymmetrical cost increases to some manufacturers, the potential increase in business risks from an increased proportion of fixed costs, and potential barriers to market entry ( e.g. , proprietary technologies). The competitive impact analysis also focus es on assessing any differential impacts to smaller manufacturers.

12.2.3.5 Manufacturing Capacity Impact
One of the significant outcomes of amended energy conservation standards can be the obsolescence of existing manufacturing assets, including tooling and other investments. The manufacturer interview guide has a se ries of questions to help identify impacts on manufacturing capacity, specifically capacity utilization and plant location decisions in North America with and without amended energy conservation 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 restructuring or other charges, where applicable.

12.2.3.6 Employment Impact
The impact of amended energy conservation standards on employment is an important

c onsideration in the rulemaking process. Manufacturer interviews play a significant role in assessing how domestic employment patterns might be impacted by amended energy conservation standards. The interview guide contains a series of questions that are designed to explore current employment trends in the GSFL and IRL industr ies and to solicit manufacturers’ views on changes in employment patterns that may result from increased standard levels. These questions focus on current employment levels at production facilities, expected future

e mployment levels with and without amended energy conservation standards, differences in workforce skills, and employee retraining.

12.2.3.7 Cumulative Regulatory Burden
DOE seeks to mitigate the overlapping effects on manufacturers of energy conservation standards and other regulatory actions affecting the same products or companies. DOE analyzes

a nd considers the impact of multiple, product-specific regulatory actions on manufacturers.12

- 5

12.3 INDUSTRY OVERVIEW
The following section summarizes publicly available industry data.

12.3.1 Industry Cost Structure
DOE developed the GSFL and IRL industry cost structure from the U.S. Census Bureau Annual Surve y of Manufacturers : Statistics for Industry Groups and Industries with data from 200 2 to 2010. Both GSFL and IRL manufacturing is classified under the North American I ndustry Classification System (NAICS) code 335110 ( Elec tric Lamp Bulb and Part Manufacturing ).
DOE is unaware of any publicly available industry-wide cost data specific to only manufacturers of GSFLs and IRLs. DOE presents the data below as a broader industry proxy for the GSFL and IRL industries.

Ta ble 12.3

. 1 presents the electric lamp bulb and part employment levels and payroll from 200 2 to 2010. The statistics show a 36.2 percent decrease in the number of production workers from 2002 to 2010
, with a corresponding 4.9 percent decrease in the overall industry payroll fr om 2002 to 2010.

T able 12.3. 1 Electric Lamp Bulb and Part Industry Employment and Earnings

Year Production Workers All Employees Payroll for All Employees thousand current year U.S. dollars 200 2 9,595 11,552 489,781 2003 8,972 10,790 481,524 2004 8,022 9,867 512,514 2005 7,604 9,289 495,057 2006 6,669 8,192 449,809 2007 7,477 9,358 447,983 2008 7,8 11 10, 050 4 57
, 719 2009 6,419 7,612 415,900 2010 6,120 7,724 465,734 U.S. Census Bureau. Annual Survey of Manufacture r s : 2005 and Earlier Years ; Annual Survey of Manufacturers: 2006 and 200 5 ; Annual Survey of Manufacturers: 2008 and 2007 ; Annual Survey of Manufacturers: 2009 and 2008 ; and Annual S urvey of Manufacturers: 2010 and 2009

Table 12.3

. 2 presents the costs of electric lamp bulb and part materials and industry
pa yroll as a percentage of shipment value from 2002 to 20 10

. The cost of materials has

s ignificantly increased by 52.8 percent as a percentage of shipment value from 2002 to 2010

. While the cost of payroll for production workers has slightly decreased by 1.4 percent, the cost of payroll for all employees has moderately increased by 14.1 percent as a percentage of shipment value from 2002 to 2010.12

- 6

Table 12.3. 2 Electric Lamp Bulb and Part Industry Material and Payroll Costs

Year Cost of Materials

percent of shipment value Cost of Payroll for Production Workers percent of shipment value Cost of Payroll for All Employees percent of shipment value 2002 33.9 14.5 18.6 2003 36.0 14.0 18.5 2004 35.8 15.4 20.4 2005 42.6 15.6 20.8 200 6 44.6 15.7 20.9 2007 44.7 14.7 20.3 2008 47.2 13.4 21.5 2009 49.0 16.3 21.4 2010 51.8 14.3 21.3 U.S. Census Bureau. Annual Survey of Manufacture r s : 2005 and Earlier Years ; Annual Survey of Manufacturers: 2006 and 200 5 ; Annual Survey of Manufacturers: 2008 and 2007 ; Annual Survey of Manufacturers: 2009 and 2008 ; and Annual Survey of Manufacturers: 2010 and 2009

12.3.2 Inventory Levels

Table 12.3

. 3 shows the year-end inventory for the electric lamp bulb and part industry obtaine d from the U.S. Census Bureau Annual Survey of Manufacturer : Statistics for Industry Groups and Industries with data from 2002 to 2010. The industry’s end

- of -year inventory from 200 2 to 2010 decreased 4.4 percent when expressed in U.S. dollars, and grew moderately by 14.8 percent when expressed as a percentage of shipment value.

T able 12.3. 3 Commercial Lighting Fixture Industry End-of-Year Inventory

Year End

- of

- Year Inventory thousand current year U.S. dollars End

- of

- Year Inventory percent of shipment value 2002 213,569 8.1 2003 212,207 8.2 2004 226,482 9.0 2005 235,934 9.9 2006 227,013 10.5 2007 254,351 11.5 2008 255,709 12.0 2009 178,773 9.2 2010 204,270 9.3 U.S. Census Bureau. Annual Survey of Manufacture r s : 2005 and Earlier Years ; Annual Survey of Manufacturers: 2006 and 200 5 ; Annual Survey of Manufacturers: 2008 and 2007 ; Annual Survey of Manufacturers: 2009 and 2008 ; and Annual Survey of Manufacturers: 2010 and 2009

12.4 INTERVIEW TOPICS AND PRELIMINARY FINDINGS
The following section summarizes information gathered during interviews held in the

se cond and third quarters of 2012 for the preliminary MIA.12

- 7

12.4.1 Market Shares and Industry Consolidation

Amended energy conservation standards can alter the competitive dynamics of the

mar ketplace, prompting companies to enter the market, exit the market, or merge with other companies. The preliminary MIA interview questions ask ed manufacturers to share their perspectives on industry consolidation both in the absence of amended energy conservation standa rds and assuming amended standards at various efficacy levels. The interview questions foc us ed on gathering information that assessed:

• disproportionate cost increases to some manufacturers;

• increased proportion of fixed costs potentially increasing business risks; and

• potential barriers to market entry ( e.g. , proprietary technologies).

The need to assess anti-competitive effects of amended energy conservation standards

c omes from the need to protect consumer interests. During the interviews, DOE solicited information to determine whether amended energy conservation standards could result in dispropor tionate economic or performance penalties for particular consumer or user subgroups. Manufacturers were also asked if amended energy conservation standards could result in
pr oducts that will be more or less desirable to consumers due to changes in product functionality, uti lity, or other features.

Market Shares: DOE inquired about the current market share of manufacturers in the GSFL and IRL industr ies and how those market shares might change due to the imposition of amended energy conservation standards. Most manufacturers expected their market share to

re main constant. However, some raised concerns that the IRL shipments may decrease as a result of standards. Further, manufacturers noted that because high performance GSFLs and IRLs are more sensitive to price increases, consumers may want to purchase a cheaper, less efficient product. While these manufacturers may lose GSFL sales, most large GSFL manufacturers also manufacture the majority of the replacement technologies that would likely be used if consumers switched from GSFL lighting to another lighting technology.

In dustry Consolidation: The GS FL and IRL industr ies are mainly composed of a few large manufacturers, but there are a handful of smaller manufacturers. As described in chapter 3 of th is TSD, three manufacturers hold the majority of the domestic market share of GSFLs and IRLs. The lighting divisions of most of these companies also manufacture other products, such as ha logen lamps, light emitting diodes (LEDs), and compact fluorescent lamps (CFLs).
Most interviewed manufacturers did not think there would be significant consolidation in the GSFL or IRL industries in the absence of standards. They also agreed that amended standards most likely would not lead to additional consolidation. However, some manufacturers stated that the smaller GSFL and IRL manufacturers could be disproportionately affected by a standard that

re quired significant conversion costs.

12.4.2 Production and Product Mix
DOE requested manufacturers’ feedback on what they perceived to be the possible impact of amended energy conservation standards on cash flow and profitability. For instance, the c apital and product conversion outlays needed to upgrade or redesign products before they12

- 8

have reached the end of their useful life may result in reduced cash flow and stranded investments. Higher energy conservation standards could also result in higher per-unit costs that

c ould cause consumers to shift to less expensive products.

12.4.2.1 Impact on Product Mix
Manufacturers believe that amended energy conservation standards could affect the
pr oduct mix of GSFLs and IRLs depending on the efficacy levels selected for the standards. S ome manufacturers stated they may shorten the lifetime of IRLs in order to comply with the hig her amended standard levels.

12.4.2.2 Product Utility

A few manufacturers expressed concern that amended energy conservation standards mi ght require changes in product functionality, utility, and other features that would make products less desirable to consumers. These manufacturers stated that for IRLs if efficacy standards were significantly more stringent, manufacturers might have to shorten the life of the lamp to meet those more stringent standards.

12.4.3 Conversion Costs
In some instances, manufacturers may be able to meet proposed standard levels by modifying existing products. In other cases, the necessary changes may entail a complete
pr oduct-line redesign. In either case, more stringent energy conservation standards would ca use manufacturers to incur one-time capital and product conversion costs. Capital conversion costs are one-time investments in property, plant, and equipment. Product conversion costs include

one -time investments in research, product development, testing, and marketing.

All manufacturers stated that the conversion costs associated with amended standards would de pend on the efficacy level established by those standards. However, several manuf acturers stated that millions of U.S. dollars would be required for testing, accreditation,

a nd laboratory expenditures due to amended energy conservation standards for GSFLs and IRLs. M anufacturers also expressed concern that amended standards may force them to shut down
some pr oduction lines and retool plants they recently retooled for the final rule published in July 2009 (hereafter the “2009 Lamps Rule”). 74 FR 34080 (July 14, 2009). c Some stated they may decide to invest in other technologies, such as LEDs, rather than spend money on bringing their

c urrent product lines into compliance with amended standards.

12.4.4 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 individual

c Information regarding the 2009 Lamps Rule can be found on regulations.gov, docket number EERE- 2006 -STD013 1 at www.regulations.gov/#!docketDetail;D=EERE- 2006 -STD- 0131

.12

- 9

manufacturers, groups of manufacturers, or entire industries. Assessing the impact of a single

re gulation may overlook this cumulative regulatory burden.
Expenditures associated with meeting other regulations are an important aspect of DOE’s consideration of the cumulative regulatory burden the industry faces. The manufacturer int erviews help ed DOE identify the level and timing of investments manufacturers are expecting to incur because of these regulations. Manufacturers were also asked under what circumstances the y might be able to make expenditures related to regulations and energy conservation standards.
Several Federal and international regulatory programs may affect the markets for GSFLs. The market and technology assessment discusses some of the notable initiatives that characterize recent developments in the lighting market. See chapter 3 of this TSD for a list and description of the r egulatory requirements DOE identified.
Several of the large GSFL and IRL manufacturers also manufacture other lightin g pr oducts that are regulated by other DOE efficiency standards, such as the fluorescent lamp ba llast standards (76 FR 70548 [Nov. 14, 2011]) and the general service incandescent lamps standa rds (74 FR 12058 [March 23, 2009]). Additionally, there are existing GSFL and IRL standa rds implemented by the 2009 Lamps Rule that require compliance.

12.5 OVERALL KEY ISSUES

An important aspect of the preliminary MIA is the opportunity it creates for DOE to identify key manufacturer issues early in the evaluation of amended energy conservation standards. During preliminary interviews manufacturers identified six major areas of concern: (1)

ra re earth materials, (2) unknown impacts of the 2009 Lamps Rule, (3) testing burden, (4) technology shift, (5) product innovation, and (6) impact on the residential sector.

12.5.1 Rare Earth Materials

Several manufacturers noted that amended standards for GSFLs could have adverse impacts on the domestic production of these products due to the fact that more rare earths would be necessary to make GSFLs more efficacious. China is currently the dominant miner and producer of rare earths worldwide and also imposes quotas on their raw rare earth exports, which drives up costs for manufacturers outside of China. As a result, manufacturers pointed out that

a mended standards could make it more attractive to manufacture GSFLs in China, rather than domestically. Several manufacturers stated that China’s restriction on the volume of rare earths exported should be cause for DOE to declare extenuating circumstances and delay a final rule.

12.5.2 Unknown Impacts of the 2009 Lamps Rule
Several manufacturers expressed concern that amended energy conservation standards would be premature given that the last round of standards required compliance in July 2012. Manufacturers are unsure how the standards from the 2009 Lamps Rule will ultimately affect their sales and shipments as consumer preferences shift due to the relatively elastic lighting market. Manufacturers noted that they have developed new products to meet the July 2012 standards and are waiting to see which consumers order which products.12

- 10

12.5.3 Testing Burden
Several manufacturers expressed concern regarding the testing burden associated with standa rds for GSFLs and IRLs. Manufacturers stated that there are already numerous testing

re quirements for compliance and certification, and amended GSFL and IRL standards would be overly burdensome. Increased regulation could force manufacturers to increase the size of their

c urrent test laboratories and the number of man-hours associated with compliance testing. Additionally, the increase in the number of hours of testing would increase manufacturers’ energy use, along with their electricity bills.

12.5.4 Technology Shift
Manufacturers reported that regardless of amended standards, a technological shift away fr om GSFLs and IRLs is already occurring. Several pointed out that the market is moving toward L ED technology, especially in the commercial sector because of rebates and the return on investment offered by this technology. Manufacturers pointed out that amended energy

c onservation standards could potentially increase the prices of GSFLs and IRLs and thereby

a ccelerate this migration to alternative technologies.

12.5.5 Product Innovation
Manufacturers expressed concern that this GSFL and IRL rulemaking could divert resources from the R&D of more efficient lighting products, such as LEDs, by forcing manufacturers to spend time and money on products with diminishing market shares. Manu facturers would be forced to reallocate resources away from LEDs to make improvements to GSFLs and IRLs that could potentially increase end-user cost and ultimately drive consumers to purchase other lighting technologies.

12.5.6 Impact on Residential Sector
Several manufacturers expressed concern that amended standards for GSFLs and IRLs would not achieve substantial energy savings in the residential sector. Residential consumers do not have long operating hours and manufacturers are concerned that consumers of IRLs will give up longer life for a cheaper and less efficacious lamp, especially given the high first costs and long payback periods of more efficient technologies, such as LEDs. Furthermore, manufacturers expressed concern that amended standards may be overly burdensome by forcing some residential consumers of GSFLs to switch out their entire systems for minimal energy savings.